IPREDICT LTD

2014 ELECTION UPDATE #4

Friday 7 February 2014

www.ipredict.co.nz

Key Points:

• Conservatives appear to be in trouble

• Act now forecast to win 3 MPs

• NZ First touching 5%

• Election now expected in October

• Key passes 60% probability of winning third term

Commentary:

The probability National will lead the next government after this year’s election – now likely to be in October – has passed 60% for the first time. The Act Party has gained at the expense of the Conservatives while John Key’s other support parties, UnitedFuture and the Maori Party, have improved their prospects of returning to parliament, as has Mana. Judith Collins’ criticisms of Green co-leader Metiria Turei appear to have shaved three percent off her prospects of being the next National Party leader, while the forecast surplus for 2014/13 is down to less than 0.4% of GDP.

Economic Context

Growth expectations have remained broadly stable over the last week. The market expects that growth will have been 1.02% in the December 2013 quarter (up from 1.00% last week). In 2014, growth is now expected to be 1.17% in the March 2014 quarter (down from 1.18% last week), 1.18% in the June quarter (down from 1.19%), 1.15% in the September quarter (down from 1.16%) and 1.21% in the December quarter (steady). Annual growth in the 2014 calendar year is now forecast to be 4.79% (down from 4.82% last week).

Expectations for the unemployment rate have improved marginally following Wednesday’s announcement by Statistics New Zealand, as accurately forecast by iPredict, that unemployment in the December 2013 quarter was 6.0%. Unemployment is now expected to be 5.84% in the March 2014 quarter (down from 5.91% last week), 5.84% in the June quarter (down from 5.88%) 5.85% in theSeptember quarter (steady) and 5.83% in the December quarter (steady).

Current account deficit expectations have also improved marginally. The current account deficit is now expected to have been 3.36% of GDP in the December 2013 quarter (down from 3.49% last week), and to be 3.43% in the March 2014 quarter (down from 3.50%), 3.60% in the June quarter (steady), 4.01% in the September quarter (steady) and 4.00% in the December quarter (steady).

Expectations for a fiscal surplus in 2014/15 have improved slightly, from 77.8% probability last week to 79.8% this week but it is now expected to be only 0.38% of GDP compared with 0.52% last week and 0.56% the week before. The surplus forecast for 2015/16 is steady at 0.82%. Stocks forecasting the 2016/17 fiscal surplus have been launched but have not yet been traded.

Inflationary expectations for the year are broadly stable with annual inflation expected to remain around the Reserve Bank’s 2% target midpoint and within the 1-3% band. Annual inflation to the end of the March quarter is expected to be 1.58% (down from 1.62% last week) and will rise to 1.90% in the June quarter, 2.09% in the September quarter and 2.18% in the December quarter.

The market continues to indicate a 98.9% probability the Reserve Bank will raise the Official Cash Rate (OCR) in 2014. Following last week’s Reserve Bank decision, as forecast by iPredict, not to raise the OCR, there is now a 91.5% probability it will be raised on 13 March (up from 81.3% last week and 70.4% the week before). A further 25-point rise is expected in either April or June. By 30 October, the OCR is forecast to be 100 basis points higher than it is now. There is a 47.5% probability of a further 25-point rise on 11 December. Overall, market pricing indicates an increase of 103 points in 2014.

There is a 92.4% probability the Reserve Bank’s restrictions on high loan-to-value ratio mortgages will stay in place through 2014 (up from 90.0% last week).

Election Date & Personnel

An early election continues to be expected, but October has replaced September as the most likely month. There is now a 50% probability the election will be held in October (up from 29% last week), a 31% probability it will be held in September (down from 55% last week) and a 14% probability it will be held in November (down from 18% last week).

As forecast by iPredict last week, Jamie Whyte and David Seymour were selected over the weekend to be leader and Epsom candidate for Act. All other current party leaders, except for Maori Party co-leader Tariana Turia are overwhelmingly expected to remain in their roles until nomination day.

In the highly unlikely event there were a change in leader of either the National or Labour parties, Judith Collins and Grant Robertson are favourites. However, Ms Collins’ prospects appear to have fallen somewhat as a result of her criticism of Green co-leader Metiria Turei’s dress sense, down from 42% last week to 39% this week. Steven Joyce and Simon Bridges are the next favourites for next National Party leader, on 27% and 10% probability respectively. Mr Robertson now has a 52% probability of being the next Labour leader compared with 47% last week, well ahead of the second-placed Jacinda Ardern on 15%.

Party Vote

A party vote turnout of 77.2% continues to be expected compared with 74.2% in 2011.

There have been small changes in forecast party vote shares over the last week. Of the major parties, National is expected to win 42.26% of the party vote (down from 43.06% last week), Labour 32.94% (down from 33.17%) and the Green Party 9.42% (down from 9.59%).

No other parties are expected to reach the 5% threshold under the MMP electoral system. NZ First is expected to win 4.73% of the party vote (compared with 4.40% last week), the ConservativeParty 4.14% (down from 4.40%), Act 2.46% (up from 1.70%), the Maori Party 1.28% (down from 1.30%), the Internet Party 1.28%, Mana 0.49% (down from 0.60%), UnitedFuture 0.49% (down from 0.60%), the Aotearoa Legalise Cannabis Party 0.30% (down from 0.40%), the Civilian Party 0.1% and Democrats for Social Credit 0.1%.

Electorate Contests

Of all small parties, Mana and UnitedFuture continue to be most likely to win a seat. Mana now has an 83.2% probability of winning at least one electorate seat (up from 73.1% last week) and UnitedFuture 80.2% probability (up from 71.8% last week). Mana has expected electorate representation of 1.06 MPs (up from 1.02 MPs last week) and UnitedFuture 0.79 MPs (down from 1.23).

The Maori Party’s prospects also continue to improve. It now has a 72% probability of winning at least one electorate seat, up from 67.5% last week and 61.5% the week before.

The Conservative Party may be in trouble. The party now has only a 53.3% probability of winning at least one electorate seat, down from 61.5% last week and 64.6% the week before. The party has expected representation of just 0.55 electorate MPs compared with 0.63 MPs last week and 0.65 the week before. Of electorate bundles launched so far, the Conservatives are not expected to win any specific electorate, with just a 27% probability of winning East Coast Bays and just a 5% probability of winning Upper Harbour.

The Conservative’s loss may be Act’s gain. Act now has a 74.4% probability of winning at least one seat compared with 71.8% last week and just 50% the week before. It now has expected electorate representation of 0.77 MPs up from 0.74 MPs last week and 0.59% the week before. It is strongly favoured to win Epsom.

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

Contract bundles for every electorate will be launched progressively through the year.

Election Result & Alternative Scenarios

Based on the party vote forecasts and the electorate results above, Parliament would be as follows: National 54 MPs (steady), Labour 42 MPs (steady), the Greens 12 MPs (steady), the Conservatives 5 MPs (down from 6 MPs last week), Act 3 MPs (up from 2 last week), the Maori Party 2 MPs (steady), UnitedFuture 1 MP (steady) and Mana 1 MP (steady), for a total of 120 MPs. A government would be required to have the support of 61 MPs on confidence and supply.

Under this scenario, both National and Labour/Green would have 54 MPs and would require the support of other parties to form a government.

A National/Conservative/Act/UnitedFuture government could be formed with 63 MPs.

No realistic scenario would give rise to a Labour-led government.

Because of the Conservative Party’s deteriorating position and NZ First’s rise, iPredict has also calculated what would happen were the former to miss out on parliament altogether and/or NZ First to reach the 5% threshold:

Scenario 1: Were the Conservatives to miss out on an electorate seat and NZ First to stay below 5%, Parliament would be as follows: National 56 MPs, Labour 44 MPs, the Greens 13 MPs, Act 3 MPs, the Maori Party 2 MPs, Mana 1 MP and UnitedFuture 1 MP. The current governing arrangement of National/Act/Maori Party/UnitedFuture could continue with 62 MPs. A Labour/Green/Mana/Maori/UnitedFuture government would be possible with 61 MPs.

Scenario 2: Were the Conservatives to win an electorate and NZ First reach 5%, Parliament would be as follows: National 51 MPs, Labour 40 MPs, the Greens 11 MPs, NZ First 6 MPs, the Conservatives 5 MPs, Act 3 MPs, the Maori Party 2 MPs, Mana 1 MP and UnitedFuture 1 MP. A National/NZ First/Conservative government would be possible with 62 MPs. No realistic Labour-led government would be possible.

Scenario 3: Were the Conservatives not to win an electorate but NZ First reach 5%, Parliament would be as follows: National 53 MPs, Labour 42 MPs, the Greens 12 MPs, NZ First 6 MPs, Act 3 MPs, the Maori Party 2 MPs, Mana 1 MP and UnitedFuture 1 MP. A National/Act/NZ First government or a National/Maori Party/UnitedFuture/NZ First would have 62 MPs. A Labour/Green/Maori/Mana/NZ First government would have 63 MPs.

Overall, the market indicates another gain this week to National, which has increased its probability of leading the next government to 61.5%, up from 59.9% last week, 58.3% the week before and 53.3% three weeks ago. There is a 38.5% probability of a Labour prime minister, down from 40.1% last week, 41.7% the week before and 45.1% three weeks ago.

Labour continues to be favoured to win the 2017 election.

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 8.07 am today.

ENDS

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