IPREDICT LTD
2011 ELECTION UPDATE #38
11 August 2011
FOR IMMEDIATE RELEASE
www.ipredict.co.nz

Key Points:

* Growth and unemployment expectations worsen after recent improvements
* OCR increase now not expected until December
* National strengthens; no longer needs Act
* Notable movements in key electorate seats, including New Plymouth, Waitakere and Tamaki-Makaurau
* NZ First falls below MMP's 5% threshold

Commentary:

Growth expectations have fallen back again, this week's snapshot from New Zealand's prediction market, iPredict, suggests. Consequently, the first increase to the OCR is now not forecast until December, with further increases now expected to be less frequent than previously indicated. There is also a reduced likelihood that mortgage rates will pass 6.00% before the end of the year. In politics, National's position has strengthened, and John Key is expected to be able to govern with his choice of the Act Party, the Maori Party or UnitedFuture, or a combination of all three. There has been significant movement in electorates, with Pita Sharples' lead in Tamaki-Makaurau reduced by 14%, Jonathan Young's hold on the New Plymouth electorate reduced by 10%, and Paula Bennett's Waitakere electorate chances increasing by 18%. New Zealand First has again fallen below MMP's 5% threshold.

Economic Context

Expectations for GDP growth have diminished this week. Growth is expected to be 0.7% for the June quarter (steady), 0.6% for the September quarter (down from 0.9% last week), 0.5% for the December quarter (down from 0.8% last week) and 0.6% for the March 2012 quarter (steady).

Figures released last week show that the unemployment rate for the June quarter was 6.5%, largely in line with iPredict's indication last week of 6.6% Forecast unemployment has deteriorated slightly for future quarters, with unemployment expected to be 6.4% for the September 2011 quarter (steady), 6.2% in the December 2011 quarter (up from 6.1% last week) and 6.2% in the March 2012 quarter (up from 6.1% last week).

Inflation expectations have remained largely unchanged. Annual inflation is expected to be 5.0% in the September 2011 quarter (down from 5.1% last week), 2.9% in the December 2011 quarter (steady) and 2.6% in the March 2012 quarter (steady).

The market continues to indicate strongly that petrol prices will be capped at a maximum price of $2.30 this year. The probability that unleaded petrol will exceed $2.30 per litre in 2011 is 19% (down from 22% last week), the probability it will exceed $2.40 per litre is 8% (down from 11% last week), and the probability it will go above $2.50 per litre is 8% (down from 10% last week).

The market now expects Reserve Bank Governor Alan Bollard to hold off an increase in the OCR until December, when it will rise to 2.75%, and then again in March 2012 to 3.00%, and in April to 3.25%.

The expected 90-day bank bill rate for 1 September 2011 is 2.91% (down from 3.05% last week) and for 1 December 2011 is 3.07% (down from 3.20% last week).

There is now a 68% probability that average floating-rate mortgages will reach 6.00% by the end of the year, down from a 93% probability last week, but just an 11% probability that they will reach 6.50% in 2011, down from 27% last week.

The market is indicating a Current Account deficit of 4.82% of GDP for the year to June 2011 (steady), 4.69% of GDP for the year to September 2011 (down from 4.71% last week), and 4.28% of GDP for the year to December 2011 (down from 4.30% last week).

Parties & Personnel

All current leaders of parliamentary parties have at least a 91% probability of remaining in their positions until the election. The most vulnerable is Labour Party leader Phil Goff, but with just a 9% probability of being replaced prior to the election (steady from last week).

Key Electorate Contests

Act has remained steady in Epsom this week with an 89% probability that the seat will be won by a candidate other than a National candidate or incumbent Act MP Rodney Hide.

In Ohariu, United Future's Peter Dunne has also remained steady with a 73% probability of being re-elected.

New Zealand First is once again below MMP's 5.0% threshold at 4.9% (down from 5.1% last week), with party leader Winston Peters having only a 22% probability of returning to Parliament (steady).

Expectations that Mana Party leader Hone Harawira will retain the Te Tai Tokerau seat in the General Election have improved slightly at 83% (up from 82% last week).

Expectations that Maori Party Co-Leader Pita Sharples is expected to retain Tamaki-Makaurau have reduced markedly from 66% last week, to 52% this week Co-Leader Tariana Turia is still expected to retain Te Tai Hauauru (79%, steady), and Te Ururoa Flavell is expected to retain Waiariki (73%, steady).

For the Labour Party, Nanaia Mahuta is expected to retain Hauraki-Waikato (78%, up from 76% last week) and Labour's position in Ikaroa-Rawhiti (currently Parekura Horomira's seat) has improved (76%, up from 72% last week)

Te Tai Tonga remains forecast to change hands, with a 76% probability it will be won by Labour's Rino Tirikatene from the Maori Party's Rahui Katene (up from 74% last week).

In marginal electorates other than those mentioned above, the probability National's Jonathan Young will retain New Plymouth has fallen to 68% from 78% last week. There is an 81% probability that National's Nikki Kaye will retain Auckland Central (up from 76% last week). The likelihood that National's Paula Bennett will retain her Waitakere seat has improved markedly to 73% (up from 55% last week) and Labour's Damien O'Connor is expected to win back West Coast-Tasman for Labour, but has lost some ground (52%, down from 58% last week).

With no changes to forecast winners in electorate seats over the last week, National continues to be expected to win 40 electorate seats, Labour 24, the Maori Party 3, and Act, United Future and the Mana Party 1 each.

Party Vote, Election Result and Alternative Scenarios

Forecast party vote shares are now: National 46.0% (up from 45.5% last week), Labour 30.6% (down from 31.9% last week), the Greens 7.0% (down from 7.3% last week), Act 5.5% (up from 5.0% last week), New Zealand First 4.9% (down from 5.1% last week), UnitedFuture 2.0% (up from 1.8% last week), the Maori Party 1.8% (steady), the Mana Party 1.7% (up from 1.4% last week), the Conservative Party 0.7% (down from 1.1% last week), the New Citizen Party 04% (steady), and the proposed Reform New Zealand Party 0% (steady).

Based on this data, and the electorate results above, Parliament would be as follows: National 58 MPs, Labour 39 MPs, the Greens 9 MPs, Act 7 MPs, the Maori Party and UnitedFuture 3 MPs each, and the Mana Party 2 MPs. There would be 121 MPs, requiring a government to have the support of 61 MPs on confidence and supply. John Key's National Party could govern with the support of the Act Party, the Maori Party, or UnitedFuture.

Given New Zealand First's proximity to MMP's 5% threshold, iPredict has also analysed what might happen should New Zealand First win 5.0% of the vote. Under this scenario, Parliament would be as follows: National 56 MPs, Labour 37 MPs, the Greens 8 MPs, Act 7 MPs, New Zealand First 6 MPs, the Maori Party 3 MPs, UnitedFuture and the Mana Party 2 MPs each. There would be 121 MPs, requiring a government to have the support of 61 MPs on confidence and supply. John Key's National Party would require the support of either the Act Party or the Maori Party and UnitedFuture.

Overall the market indicates a 93% probability there will be a National Prime Minister after the election (up from 91% last week).

MMP Referendum and Miscellaneous

The probability New Zealanders will elect to retain the MMP voting system in the referendum to be held on Election Day is 83%, up from 78% last week.

iPredict is owned by Victoria University of Wellington. Details on the company and its stocks can be found at www.ipredict.co.nz The company is providing full election coverage this year, with contract bundles for the party vote and for every electorate race in the country now available for trading, along with other contract bundles on a wide range of economic, political and social issues. The weekly political snapshot is taken at a random time each week to avoid market manipulation by political parties or activists. This week's was taken at 9:21 am today.

ENDS

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