The New Zealand economy decelerated during 2005, after six years of strong economic growth of around 4% on average per year, and remained sluggish in 2006. But there is, as yet, little sign of spare capacity, and the labour market has so far been resilient. Nevertheless, a series of inter-related imbalances have accumulated in the economy and have started to unwind only very slowly. Strong household income growth and ongoing immigration flows have stimulated house sales and put upward pressure on real estate prices. Banks have met the resulting increases in demand for mortgage finance by borrowing offshore, a process that has been facilitated by ample global liquidity and low risk aversion. While the government has a high saving rate, the household saving rate is significantly negative and household debt has climbed sharply to around 160% of disposable income, a ratio that is higher than in most other OECD countries. The net result is a current account deficit that stood at 9% of GDP at the end of 2006. Despite headline inflation falling sharply with the drop in the oil price, the maintenance of fairly strong domestic demand has limited progress in curbing underlying price pressures.