Be grateful you live in New Zealand because the rest of the developed world is a mess.

That was the message from BNZ head of research Stephen Toplis, who gave his view of the New Zealand economy at a presentation this morning.

Despite the Christchurch earthquakes, he said, "New Zealand has one of the fastest growing western economies - that's quite a remarkable performance."

Meanwhile the United States and Europe is in "complete disarray".

The US housing market was still showing a high level of mortgagee sales, reflecting a structural problem that would take years to resolve, and Europe faced recession and "10 years of pain" before it would fully emerge from its current crisis.

Toplis said in his view the economy would continue to grow modestly despite international headwinds, with farming and construction providing most of the impetus.

While meat and dairy were enjoying good market and growing conditions, "construction will play a big part in growth over the next 12 to 18 months," he said.

And it wouldn't just be the Christchurch rebuild - the construction sector was building 12,000 houses a year, but there was demand for 18,000-20,000. Non-residential activity would also be driven by the need to upgrade commercial buildings for earthquake resistance.

Toplis said risks to New Zealand from Europe's problems were three-fold.

Firstly, a likely recession in Europe would affect New Zealand exports, but with just 10 per cent of exports going to Europe - and most of those to the stronger economies of France and Germany - the impact would be limited.

However, if Europe's recession dragged down growth in other economies such as Australia or China there would be more significant effect.

But the biggest and least understood risk, said Toplis, was a transmission of financial stress from Europe to New Zealand through the banking system.

"In effect New Zealand banks can't borrow enough money from New Zealanders, so they look overseas. A significant portion of funding comes from Europe and the US. If that source of funding dries up it's problematic."

Banks could tap money markets elsewhere or lean on the Reserve Bank, but another outcome could involve restricting lending, shrinking the bank balance sheets "and the size of the economy with it."

Still, BNZ is forecasting growth in gross domestic product of 2.3 per cent next year, rising to 2.7 per cent in 2013, while unemployment is tipped to fall from 6.3 per cent this year to just 5 per cent in 2013.

"Offshore developments will contine to be the bane of our lives," said Toplis. "Whatever the end result, just be thankful you live in New Zealand."

We have a sound banking sector, relative political certainty, a floating exchange rate and the right exports for current global demand.

"For these reasons we cling to our view that the New Zealand economy can continue to fumble its way ahead, albeit that the task is becoming more difficult by the day."

(Source The Dominion Post, Fairfax NZ News)