Economic turmoil in Europe is keeping everything from petrol costs to house prices down in New Zealand, economists say.

The European debt crisis has meant countries have scrambled to save the euro. Seventy per cent of Greece's debt might need to be written off to avoid a default by the country. And there is global concern that the European turmoil could trigger a worldwide recession.

But economists said the deflationary impact provided a boon for New Zealanders. "The Kiwi dollar has reached record levels against the Euro, so goods we are importing from the Eurozone are getting cheaper and cheaper," BNZ chief economist Tony Alexander said.

He said it was a similar case for the pound, which was at a three-decade low against the Kiwi dollar. He expected the dollar's strength to continue.

Advertisement

Alexander added that the weakness in the European economy meant less demand for resources, so oil, steel, timber and petrol prices were lower than they might otherwise be.

ASB chief economist Nick Tuffley agreed and said that consumers who bought online would

Westpac chief economist Dominick Stephens said he expected European-produced goods to become cheaper. "Europeans are still producing things, and now they are willing to sell them to us for fewer New Zealand dollars."

Items New Zealand exported were still finding a willing market, the economists said.

Alexander said the debt crisis was not a great cause for concern for the country's exporters and farmers.

"There is less demand from Europe but we have this very strong rise in the Chinese economy, providing substantial support for agriculture."

The International Monetary Fund has forecast a growth rate of 9 per cent for China for the year and indications point to that growth continuing.

Of the European Currency Union, only Germany and the Netherlands are among the top 20 countries that receive New Zealand exports.

Advertisement

The economists said that deflation caused by Europe's weak currencies was also keeping interest rates down, which was good news for a nation of borrowers such as New Zealand. Tuffley said: "Fixed-rate mortgage rates have come down as it's looked increasingly likely that central banks will keep rates low." But he said that although that was good news for those with mortgages, people who relied on savings, such as retired people, would suffer.

Reserve Bank Governor Alan Bollard said New Zealand banks were well positioned to handle any fallout as most were owned by Australian banks, with only about 1.8 per cent exposure to European debt. However, Tuffley and Stephens said the risk premium banks paid on borrowing had increased, which had the potential to put pressure on interest rates later in the year.

Alexander said even house prices were being affected by the European debt crisis.

"If Europe was stronger the Kiwi would be weaker against the euro and the pound and we'd have more migrants coming to New Zealand from the UK and Europe.

"Lots want to but numbers are weak because they are struggling to sell their houses and their money does not buy much in New Zealand." Greece runs the risk of a disorderly default on March 20 and Alexander said if that happened it would lead to huge uncertainty.

"The cost of things would be lower but there would be huge uncertainty about the world economy ... that uncertainty would lead to much weaker sharemarkets and people pulling back on spending even further."