Even before the latest severe earthquake in Christchurch, the expected gradual economic recovery in New Zealand was being held back by efforts by the private sector to reduce debt as well as a persistently strong currency. Active monetary stimulus and a significant fiscal expansion resulting from decisions taken prior to the global downturn supported the economy through the recession, as has buoyancy in Australia and Asia and large terms-of-trade gains. Households, businesses and farmers are attempting to repair over-extended balance sheets in the aftermath of a property boom. The balance sheets of the non-financial private sector deteriorated markedly as the increase in property prices and perceived wealth prompted additional household spending. The associated widening in the current account deficit was largely financed by bank-intermediated foreign credit, adding to already high external debt. Weak business investment and low national saving have for some time contributed to poor growth performance. Achieving faster growth will require progress across a broad policy front. This includes bolder fiscal consolidation in the form of spending restraint, coupled with tax and pension reforms to boost national saving. These measures would allow interest rates to stay low for longer and create room for the exchange rate to ease, thereby facilitating the needed rebalancing of the economy, boosting output of tradable goods and services.