IPredict Ltd

2014 Election Update #18

Monday 19 May 2014

www.ipredict.co.nz

Key Points:

• National still favoured to win election with minor parties’ support

• Act now forecast to have 4 MPs

• Palmerston North now a dead-heat between National and Labour while Hamilton East and West, Rotorua, and Waiariki highly marginal

• Collins back as second favourite to succeed Key as National Party Leader, and Ardern back behind Robertson as second favourite to succeed Cunliffe as Labour Leader

• OCR expectations fall slightly

• Unemployment forecasts up marginally

Commentary:

Despite delivering a Budget last week including a better-than-expected surplus, an extension of the paid parental leave scheme and free doctor’s visits and prescriptions for all children under 13, National’s forecast support has slipped this week, although it still remains favoured to secure a third term, according to the combined wisdom of the 7000 registered traders on New Zealand’s online predictions market, iPredict. National would, however, require the support of the ACT Party, which is now forecast to win 4 seats, and at least one of UnitedFuture or the Maori Party should Prime Minister John Key wish to avoid having to rely on Winston Peters’ NZ First Party. There remains significant volatility in a number of electorate seats with Palmerston North now a dead-heat between National and Labour, and Cabinet Ministers Todd McClay and Jonathan Coleman both coming under pressure to retain their electorates. Despite several tough weeks, Judith Collins is again second favourite to succeed John Key as Leader of the National Party behind Steven Joyce, while Jacinda Ardern has moved past Andrew Little to sit behind only Grant Robertson as second favourite to succeed David Cunliffe as Labour Party Leader. In economic forecasts, growth forecasts remain steady and there has been a small dip in forecasts for the Official Cash Rate (OCR).

Economic Context

Growth expectations are relatively unchanged this week. Growth in the March 2014 quarter is expected to be 1.0% (steady compared with two weeks ago), 1.0% in the June quarter (steady), 1.1% in the September quarter (up from 1.0%) and 1.1% in the December quarter (steady). Forecast annual growth for 2014 remains 4.3%.

Unemployment expectations have risen slightly following Statistics NZ’s announcement that unemployment reached 6.0% in the March quarter. Unemployment is now expected to be 5.7% in the June quarter (up from 5.6% two weeks ago), 5.5% in the September quarter (up from 5.4%) and 5.5% in the December quarter (steady).

Forecasts for New Zealand’s current account deficit are largely unchanged and are 2.9% for the March 2014 quarter (down from 3.0% two weeks ago), 3.5% in the June quarter (down from 3.6% two weeks ago), 3.9% in the September quarter (steady) and 3.9% in the December quarter (steady).

The probability of a fiscal surplus in 2014/15 has fallen marginally to 94% (down from 95% two weeks ago). The surplus forecast for 2014/15 is 0.45% of GDP (down from 0.48% two weeks ago), while the forecast for the 2015/16 surplus is 0.974% of GDP (up from 0.931% two weeks ago), and the forecast surplus for 2016/17 remains 2.00% of GDP (steady).

Inflationary expectations remain below the Reserve Bank’s 2% target midpoint through 2014. Annual inflation to the end of the June quarter is expected to be 1.7%, (up from 1.5% two weeks ago), 1.6% in the September quarter (down from 1.7%) and 1.7% in the December quarter (up from 1.6%).

The market is forecasting a 82% probability that the Reserve Bank will increase the Official Cash Rate (OCR) by 25 basis points at its next review on 12 June (down from 85.8% two weeks ago). Compared with the rate of 2.5% at the start of 2014, the market is pricing that the OCR will be up 71 basis points in June (down from 72 two weeks ago,) 84 in July (down from 86), 92 in September (down from 96), 102 in October (down from 107), 116 in December (down from 119), 127 inJanuary 2015 (down from 130) and 143 in March 2015 (down from 146).

Other Issues

There is now just a 25% probability Judith Collins will lose all her ministerial portfolios before parliament is dissolved on 14 August, down from 57% two weeks ago.

New Zealand’s chances of being elected to the UN Security Council for 2015-16 have fallen back to 30%, compared with 53% two weeks ago, 60% three weeks ago, and 52% four weeks ago. The probability Helen Clark will be appointed thenext UN Secretary General is 22%, down from 40% two weeks ago and 31% three weeks ago. The probability New Zealand will sign a Free Trade Agreement with South Korea before 1 December 2014 is up from 47% two weeks ago to 53%.

The probability the US Congress will ratify the yet-to-be-signed Trans Pacific Partnership (TPP) agreement before 1 July 2015 is up to 11% from 2.5% two weeks ago, and there is a 35% probability a deal will be ratified by the US Congress by 1 July 2017, down from 38% two weeks ago.

Party Vote

All current party leaders, except for Maori Party co-leader Tariana Turia, are strongly expected to remain in their roles until nomination day with at least 95% probability. The party vote turnout is expected to be 76.3% (up from 74.4% two weeks ago), up from the 74.2% turnout in 2011.

Of major parties, National is expected to win 43.67% of the party vote, down from 44.96% two weeks ago. Labour is up to 29.22%, from 27.77% two weeks ago, while the Green Party is up marginally to 10.54%, from 10.38% two weeks ago.

Of smaller parties, NZ First is expected to win 5.6% of the party vote, down from 5.7% two weeks ago. The Conservative Party’s forecast party vote has fallen to 3.6%, from 4.3% two weeks ago, and is short of the 5% threshold required for parliamentary representation unless it wins an electorate seat. Act is up to 3.4% from 2.7% two weeks ago and UnitedFuture is down to 0.4% from 0.5% two weeks ago.

Mana is steady on 1.1%, while the Maori Party is on 0.9%, down from 1.0% two weeks ago. The Internet Party has slipped to 1.0%, down from 1.2% two weeks ago, while the Aotearoa Legalise Cannabis Party has made a marginal gain to 0.31% from 0.30% two weeks ago.

Electorate Contests

The Conservative Party’s probability of winning at least one seat is now 32%, up from 31% two weeks ago, although its expected electorate representation has fallen to 0.36 MPs from 0.40 two weeks ago. The Conservatives are not expected to win any specific electorate. Their probability of winning East Coast Bays remains 30%, while their probability of winning Rodney is 11% (down from 12% two weeks ago) and they now trail both National and Labour in Upper Harbour with just 6% (compared with 16% two weeks ago) probability.

Act’s probability of winning at least one electorate seat is up to 85%, from 72% two weeks ago, and its expected electorate representation is up to 0.83 MPs from 0.73 two weeks ago. The market is pricing that it has a 85% probability of winning Epsom (up from 71% two weeks ago).

UnitedFuture prospects remain broadly unchanged this week. It has a 78% probability of winning at least one seat (down from 79% two weeks ago) and has expected electorate MP representation of 0.77 MPs (down from 0.79). Its probability of winning Peter Dunne’s Ohariu electorate remains 79% (steady).

In the Maori electorates, Mana now has an 88% probability of winning at least one seat (up from 82% two weeks ago) and its expected electorate representation is 1.0 electorate MPs (steady). The Maori Party has a 62% probability of winning a seat (up from 57% two weeks ago) and its expected electorate representation is 0.74 MPs (up from 0.71).

Mana’s probability of winning Te Tai Tokerau is 87%, up from 80% two weeks ago, but the probability it will win Waiariki has fallen to 38% (from 40% two weeks ago) behind Maori Party Leader Te Ururoa Flavell on 60% probability (steady). The probability the Maori Party will retain Tariana Turia’s Te Hauauru electorate has fallen to 17% (down from 20% two weeks ago), with Labour favoured to win with 83% probability.

The Greens and NZ First continue not to be expected to win electorate seats.

The six most marginal general seats, excluding Waiariki, are now Palmerston North, Hamilton East, Rotorua, Hamilton West, Northcote and Port Hills.

In Palmerston North, Labour’s Ian Lees-Galloway appears to be in serious trouble following confirmation from Palmerston North Mayor Jono Naylor that he is seeking the National Party’s nomination. Mr Naylor is the sole applicant, with National and Labour deadlocked on 50% probability of winning the seat.

In Hamilton East, National’s David Bennett continues to be in serious trouble with just a 55% chance (steady) of retaining his seat ahead of his Labour opponent, Cliff Allen, while in Hamilton West National’s Tim Macindoe now has just 60% probability of retaining the seat from a Labour challenger.

In Rotorua, National’s Todd McClay is facing increasing pressure from Labour’s Tamati Coffey, and now has just a 57% probability of retaining the seat.

In Northcote, Cabinet Minister Jonathan Coleman is coming under pressure from Labour challenger Richard Hill, and now has just 62% probability of retaining the seat.

In Port Hills, Labour’s Ruth Dyson retains 62% probability of holding the seat, while in both Te Atatu and Waimakariri, Labour’s Phil Twyford and Clayton Cosgrove have increased their probability of winning their respective seats from 50% two weeks ago to 75% this week.

Election Result & Alternative Scenarios

Based on the party vote forecasts and the electorate results above, a Parliament would include: National 56 MPs, Labour 37 MPs, the Greens 13 MPs, NZ First 7 MPs, Act 4 MPs and Mana, the Maori Party and UnitedFuture 1 MP each. Parliament would have 120 MPs and a government would be required to have the support of 61 MPs on confidence and supply.

Under this scenario, National would still enjoy a number of potential governing arrangements. A National/Act/UnitedFuture government would have 61 seats, a National/Act/UnitedFuture/Maori Party Government 62 seats, or a National/NZ First Government 63 seats. There is no viable scenario where the Labour Party could form a government.

In light of speculation about a Mana/Internet Party arrangement, iPredict has also modelled what would happen if the parties merged for the purposes of the party vote and maintained their combined forecast party vote of 2.2%. Under such a scenario, National would have 55 seats, Labour 36, the Greens 13, NZ First 7, Act 4, Mana/Internet 3, and the Maori Party and UnitedFuture 1 each. Parliament would have 120 MPs and a government would be required to have the support of 61 MPs on confidence and supply.

Under this scenario, National would again be re-elected and be able to govern with the support of the Act, UnitedFuture and Maori Parties with 61 MPs, or with the support of NZ First with 62 seats. A Labour/Green/Mana-Internet/NZ First government would have 59 MPs, and be unable to form a government.

Should Winston Peters have the balance of power after the election, iPredict’s bundle of stocks forecasting NZ First’s decision-making indicates Mr Peters would support a National-led Government. There is now a 58% probability he would give confidence and supply to National (up from 32% two weeks ago) and just a 33.5% probability he would give confidence and supply to Labour (down from 49% two weeks ago). There is an 8% probability he would give confidence and supply to neither (down from 17% two weeks ago), which would favour the larger bloc, which the market indicates would be National-led.

Overall, National now has a 72% probability of leading the next government, up from 69% two weeks ago.

Post Election Developments

David Cunliffe’s position as Labour leader has not improved. There is now a 70% probability he will depart as leader by the end of 2015, up from 66% two weeks ago, a 76% chance he will depart by the end of 2016, up from 74% two weeks ago, and an 87% he will step down by the end of 2017, up from 82% two weeks ago.

Grant Robertson continues to be strongly favoured to succeed Mr Cunliffe. He has a 66% probability of being the next Labour leader (down from 68% two weeks ago), followed by Jacinda Ardern on 14% (steady) and Andrew Little on 13% (down from 16%).

In National, John Key now has a 54% probability of departing as leader by the end of 2015 (steady), a 69% probability of departing by the end of 2016 (down from 70% two weeks) and an 86% probability he will depart by the end of 2017 (down from 87%).

Steven Joyce remains favoured to succeed Mr Key as National Party leader, with 52% probability (down from 57% two weeks ago), followed by Judith Collins who has recovered to 20% probability (up from 8% two weeks ago) and Simon Bridges who has fallen to 8% (down from 24% two weeks ago).

Labour’s chances of winning the 2017 election are steady on 53%.

Miscellaneous

iPredict Ltd is owned by Victoria University of Wellington. Details on the company and its stocks can be found at www.ipredict.co.nz. The weekly political update is prepared by Exceltium Ltd on a pro bono basis and is based on a snapshot taken at a random time each week. This week’s was taken at 8.52 am today.

ENDS

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