NZ has a large Current Account deficit. Why is this a problem for NZ?

Identify: (Deficit) NZ traditionally spends more on import payments than it earns on export receipts, creating a deficit on its Current Account. Explain: Any Current Account deficit must be funded by borrowing from overseas. This is reflected as an inflow into the Financial Account. To attract foreign investors to lend to NZ, interest rates will need to rise. High interest rates have a negative effect on NZ’s economy as the cost of borrowing increases for consumers and producers. This decreases consumption and investment, decreasing economic growth. Relate: So a Current Account deficit is a problem for NZ due to it’s negative effect on Economic Growth.

I.E.R (aka D.E.R & S.E.X) Identify the problem, situation etc (state the obvious) Explain how the problem is a problem, how it can be fixed etc Relate your answer back to the specific question given. Or Statement – State the question, situation Explain: The Answer to the Question Example: Use the example given to answer the question. Or Define the situation, problem etc Explain your self Relate back to the question