ECONOMIC & POLITICAL NEWSLETTER #5

8 March 2012

FOR IMMEDIATE RELEASE

www.ipredict.co.nz

Key Points:

• iPredict outperforms Washington Post in forecasting US Republican primaries

• World growth forecasts dip

• Liberal National overwhelmingly favoured over Labor in Queensland, although Campbell Newman’s odds of winning Ashgrove dip to 77%

• New Zealand Labour continues to get stronger, with change of government expected in 2014

• Peter Beck, Lianne Dalziel and Aaron Keown all expected to stand for Christchurch mayoralty

• Australia and NZ to win joint hosting of the Square Kilometre Array

• New Zealand Defence Force to keep payroll services inhouse

Hot Topics

The 6000 traders on New Zealand’s online predictions market, iPredict, have outperformed the Washington Post’s political writers in accurately forecasting the results of the Super Tuesday Republican Party primaries and caucuses this week. iPredict accurately forecast the result of nine out of ten races, while the Washington Post’s experts had an accuracy rate of between 40% and 80%.

iPredict continues to forecast that Barack Obama will be re-elected President of the United States in November, that the British Conservative/Liberal Democrat coalition will survive 2012, that Francois Hollande will replace Nicolas Sarkozy as French President in April or May, that Bashar al-Assad will survive as Syrian President until at least June, and that there will be a change of state government in Queensland, and changes of national government in Australia and New Zealand, over the next three years

Expectations for world growth in 2012 are down 0.09% this week, to just 3.09%. Meanwhile, Australia and New Zealand are expected to win joint hosting of the square Kilometre Array (SKA) project.

There is now only a 32% chance that the Defence Force will announce the outsourcing of its payroll and administration functions before 2013, down from a 66% probability last week.

New Zealand Economic Forecasts

New Zealand growth prospects have improved slightly this week, with growth expected to be 0.6% for the December 2011 quarter, 0.5% for the March 2012 quarter and now 0.5% for the June 2012 quarter (up from 0.4% last week).

Forecast unemployment is unchanged this week, with the market still predicting unemployment of 6.4% for the March 2012 quarter and 6.3% for the June 2012 quarter.

Inflationary expectations have cooled slightly over the last week. Though inflation is forecast to remain steady at 1.6% for the March 2012 quarter, it is expected to ease to 1.5% for the June 2012 quarter (down from 1.6%) and 1.7% for the September 2012 quarter (down from 2.0%).

Following recent pessimistic data about New Zealand’s economic outlook, it is now expected that the Reserve Bank of New Zealand will hold off increasing the Official Cash Rate until December 2012 at the earliest, whereas last week a potential October rise was forecast.

Petrol prices are set to rise, with the market now indicating a 61% probability that 91 unleaded petrol prices will be between 216 and 224 cents for the week ended 30 March 2012 (up from 58% last week).

The 2011/12 Fonterra payout is now expected to be $6.99 per kilogram of milk solids before retentions, down 3c over the week. The forecast payout for 2012/13 has slipped 10c to $7.00, while forecast 2013/14 and 2014/15 payouts have remained steady at $7.42 and $7.46 respectively.

Current account deficit expectations are 4.06% of GDP to December 2011, down 0.01 points on last week, and 4.27% to March 2012, up 0.14 points on last week.

International Economic Forecasts

World growth expectations have slipped, with growth now expected to be 3.09% for the 2012 year, down 0.09 points on last week.

There is now a 31% probability that at least one Euro member will depart the single currency in 2012, up from 28% last week

There continues to be a 40% probability the US Senate will formally approve a resolution of ratification of the Trans Pacific Partnership by July 2015.

International Politics

Australian first preferences at the 2013 federal election are expected to be: Liberal 38.5% (up from 33.9%), Labor 32.5% (down from 38.4%), Greens 9.6% (down from 10.9%), Queensland Liberal National 8.3% (down from 9.4%), and all other parties 10.0% (up from 9.4%). Stocks for smaller parties and for the two-party preferred vote will be launched tomorrow. There is only a 31% probability that Julia Gillard will depart as Labor leader before the next Federal election, but a 76% probability that she will lose the next Federal election. Campbell Newman has a 77% probability of winning Ashgrove in the next Queensland state election and his Liberal National Party has a 95% probability of defeating Labor in Queensland.

In China, Wen Jinbao is expected to remain the Premier of the People's Republic of China until at least 1 January 2013, Yang Jiechi is expected to remain Minister of Foreign Affairs and Chen Deming to remain Commerce and Trade Minister. However, Zhou Xiaochuan is expected to be replaced as Governor of the People's Bank of China by year’s end, as is Xie Xuren as Minister of Finance.

After iPredict’s success in forecasting US Republican Super Tuesday results –correctly forecasting the Alaska, Georgia, Idaho, Massachusetts, Ohio, Oklahoma, Tennessee, Vermont, and Virginia caucuses and primaries - contracts will be launched today for Kansas, Guam, Northern Mariana Island, and the US Virgin Islands, ready for the results on 10 March. Contracts for Alabama, American Samoa, Hawaii, and Mississippi will be launched ready for the results on 13 March.

Overall, Mitt Romney has a 92% chance of being the Republican nominee, up from 83% last week, but Barack Obama now has a 68% probability of being re-elected in November, up from 65% last week.

In the UK, the Conservative / Liberal Democrat coalition is expected to survive 2012 (80% probability).

In France, however, there is a 62% probability Francois Hollande will win the presidential election over incumbent Nicolas Sarkozy.

In Syria, Bashar al-Assad is expected to remain in power until at least 1 June 2012. Contracts for 1 July, 1 August and 1 September will be launched next week.

There is a 28% probability Israel will launch an airstrike against Iran in 2012, down from 31% last week and a 14% probability North Korea will detonate an atomic device up from 13% last week.

Science and Climate Change

There is a 52% probability average global temperatures will be hotter in 2012 than in 2011 and a 10% probability 2012 will be the hottest year on record. There is a 61% probability that Australia-New Zealand will win the hosting of the Square Kilometre Array.

New Zealand Politics

iPredict’s traders continue to forecast an end to Peter Dunne’s 28-year parliamentary career, giving UnitedFuture just a 35% probability of winning a seat in the next General Election. The Maori Party also appears to be in dire straits, with the market predicting that it will only win two seats in the next General Election.

The Mana and Act parties are expected to win one seat each. The Green, New Zealand First and Conservative and UnitedFuture parties are not expected to win any electorate seats.

Party vote forecasts are: National 40.6% (down from 42.6%), Labour 35.9% (up from 34.5%), Greens 9.6% (steady), NZ First 5.1% (steady), Conservative 2.7% (steady), Act 1.7% (steady), Maori Party 1.4% (steady), Mana Party 1.3% (steady), and UnitedFuture 0.7% (up from 0.5%). Parliament would consist of: National 51 MPs, Labour 45 MPs, the Greens 12 MPs, New Zealand First 6 MPs, the Maori, Act and the Mana Party 2 MPs each, UnitedFuture would have no MPs. There would be 120 MPs, requiring 61 to govern.

David Shearer’s Labour Party could form a Government with the support of the Greens, and either the New Zealand First, the Maori or Mana Parties.

Overall, there is a 58% (up from 57%) probability Labour will form a Government after the next General Election, with a 45% (up from 43%) probability David Shearer will be Prime Minister by 1 January 2015.

Grant Robertson and Judith Collins are favoured should there be a vacancy in the leadership of the Labour and National parties, respectively.

In New Zealand mayoral races, Bob Parker is set to lose Christchurch and Celia Wade-Brown to lose Wellington. Peter Beck, Lianne Dalziel and Aaron Keown are expected to stand for the Christchurch mayoralty. Dave Cull in Dunedin, Tim Shadbolt in Invercargill, Len Brown in Auckland, Julie Hardaker in Hamilton and Jono Naylor in Palmerston North all look safe.

Miscellaneous

iPredict is owned by Victoria University of Wellington. Details on the company and its stocks can be found at www.ipredict.co.nz. The weekly snapshot is taken at a random time each week. This week’s was taken on Thursday 8 March.

ENDS

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