Consumers' big spend-up fuels deficit of $9.4b

The national overdraft blew out to $9.4 billion last year, reflecting a hot economy.

That is the gap between what New Zealand earned from the rest of the world through trade, tourism and investment and what it spent.

In spite of high world prices for export commodities such as dairy products and meat, the strong dollar and consumers' avid appetite for imported goods meant imports exceeded exports by $2 billion last year.

That was largely offset by a net $1.5 billion gain from trade in services, especially tourism.

But what mainly pushed the deficit so deep in the red was the net outflow of investment income.

That is the cost of paying interest to overseas lenders and the healthy profits earned by foreign-owned companies.

The pace at which the deficit grew in the last three months of the year means New Zealand has to attract about $1.4 million an hour of foreigners' savings to cover the shortfall.

The legacy of decades of running such deficits is that the country is a net debtor to the rest of the world to the tune of $123 billion, or $30,000 for every man, woman and child.

That much debt makes for higher interest rates: it is estimated that the increase in private sector overseas debt over the last 20 years has meant that interest rates are 1 per cent higher than they would otherwise be.