Why the economy of the South become so bad during the Civil War?

Because the Union naval blockade became steadily more effective, and they were unable to export their plentiful cotton in exchange for war supplies.

Also most of the battles were in the South, and the farms and railroads suffered increasing damage, especially when Sherman launched his March to the Sea.

All of this wrecked the economy, and the Confederate dollar was down to five cents by early-1864.