IPREDICT LTD

2014 ELECTION UPDATE #8

Tuesday 4 March 2014

www.ipredict.co.nz

Key Points:

• National, Labour and the Conservatives make gains this week at expense of Greens and Act

• Cunliffe 99% likely to remain Labour leader until election but 62% likely to step down before end of 2015

• Joyce now ahead of Collins and Bridges to replace Key, who is 63% likely to step down as National leader before end of 2016

• Robertson and Ardern lose ground in Labour leadership race with rise of Jones and Little

• Crimean crisis appears to hurt chances of Security Council seat

• September election even more strongly favoured, and National reaches 65% probability of winning third term

• Labour expected to pick up Napier, Waimakariri and Tamaki Makaurau

Commentary:

The more than 7000 registered traders on New Zealand’s online predictions market, iPredict, overwhelmingly pick Labour leader David Cunliffe to remain in his job until this year’s election, now even more strongly expected to be held in September and to result in a National Prime Minister. Mr Cunliffe is then expected to step down before the end of 2015 to be replaced by Grant Robertson, ahead of Jacinda Ardern, but with Shane Jones and Andrew Little also emerging as serious contenders. For his part, the probability National leader John Key will step down before the end of 2016 is up to 63% with Steven Joyce now ahead of both Judith Collins and Simon Bridges in the race to replace him.

Economic Context

Growth expectations have remained steady this week. The market continues to expect that Statistics New Zealand will report on 20 March that growth in the December 2013 quarter was 1.2% for the quarter. Quarterly growth is expected to be 1.2% in the March 2014 quarter, 1.2% in the June quarter, 1.2% in the September quarter and 1.2% in the December quarter. Annual growth for 2014 continues to be forecast to be 4.9%.

Expectations for the unemployment rate have also remained stable. Unemployment continue to be expected to be 5.8% in the March 2014 quarter, 5.7% in the June quarter, 5.6% in the September quarter (steady) and 5.5% in the December quarter.

Current account deficit expectations are also broadly steady. The current account deficit is expected to have been 3.0% of GDP in the December 2013 quarter, and to be 3.4% in the March 2014 quarter, 3.5% in the June quarter, 4.0% in the September quarter and 4.00% in the December quarter.

Expectations for a fiscal surplus in 2014/15 have worsened marginally over the last week. There is now a 90% probability of a fiscal surplus in 2014/15, down from 94% last week. The surplus in 2014/15 is now expected to be 0.47% of GDP, down from 0.49% last week. The surplus forecast for 2015/16 is steady on 0.82% of GDP and 2.0% of GDP for 2016/17, also steady.

Inflationary expectations are steady, 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 quarteris expected to be 1.6% and will rise to 1.9% in the June quarter, 2.1% in the September quarter and 2.10% in the December quarter.

The market has reversed its view on interest rate expectations compared with last week, now again strongly believing interest rises will tend to occur earlier in the year. The market continues to indicate a 98.9% probability the Reserve Bank will raise the Official Cash Rate (OCR) in 2014. However, the probability it will be raised on 13 March is up sharply to 91% compared with 79% last week. Compared with the current rate of 2.50%, the market is pricing that the OCR will be up 42 basis points in April (up from 36 points last week), 61 in June (up from 55), 74 in July (up from 69), 86 in September (up from 81), 96 in October (up from 91) and 108 in December (up from 103).

Other Issues

The crisis in Crimea appears to have worsened New Zealand’s chances of being elected to the UN Security Council for 2015-16, which are down to 43% compared with 64% last week. The probability New Zealand will sign a Free Trade Agreement with South Korea before 1 December 2014 has also fallen, to 45% from 48% last week and 53% the week before.

The probability the US Congress will ratify the yet-to-be-signed Trans Pacific Partnership (TPP) agreement before 1 July 2015 remains at 3%, with only a 35% probability a deal will be ratified by the US Congress by 1 July 2017.

Election Date & Personnel

Sentiment has shifted even more strongly towards the election being held in September, with a 65% probability it will be held in that month, up from 48% last week and 31% the week before. The most likely day continues to be Saturday 27 September, with 43% probability (up from 29% last week and 10% the week before), followed by Saturday 20 September, with 17% probability (steady).

Other possibilities are Saturday 18 October, with 12% probability (down from 14% last week) and Saturday 1 November, with 8% probability (down from 10%).

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. Labour’s David Cunliffe has 99% probability of staying in his role until nomination day and National’s John Key 98% probability.

Party Vote

A party vote turnout of 75.0% is forecast (steady), marginally up from the 74.2% turnout in 2011.

National, Labour and the Conservatives have gained this week at the expense of the Greens and Act.

Of the major parties, National is expected to win 44.28% of the party vote, up from 44.13% last week, 43.33% the week before and 42.02% three weeks ago). Labour has also gained over the last week and is now back on 32.14% compared with 32.00% last week, 32.57% the week before and 34.03% three weeks ago. The Green Party’s expected vote is now below 9%, at 8.96% compared with 9.13% last week, 9.76% the week before and 9.08% three week’s ago.

Of smaller parties, NZ First is again expected to narrowly miss out on the 5% threshold under the MMP electoral system when parties’ likely support is adjusted to sum to 100%. Winston Peters’ party is expected to win 4.94% of the party vote, up from 4.92% last week.

The Conservative Party has gained this week and is now expected to win 4.15% of the party vote, up from 3.64% last week 3.82% the week before and 4.02% three weeks ago.

Act is down to 2.18%, compared with 2.86% last week, 2.10% two weeks ago and 2.30% the week before.

The Maori Party is broadly steady on 1.19%, as are the Internet Party on 0.78%, UnitedFuture on 0.49%, Mana on 0.40%, Aotearoa Legalise Cannabis Party on 0.30%, and the Civilian Party andDemocrats for Social Credit on 0.10% each.

Electorate Contests

The Conservative Party continues to have just a 35.0% probability of winning at least one electorate seat (steady). It’s expected representation is now down to just 0.39 MPs, from 0.41 last week and 0.53 two weeks ago

Of electorate bundles launched so far, the Conservatives are not expected to win any specific electorate, with just a 15% probability of winning East Coast Bays, down from 17% last week, 20% two weeks ago, 25% three weeks ago and 28% four weeks ago. It has just a 12% probability of winning Rodney, down from 13% last week.

The four other small parties in parliament all appear safe.

Mana has a 91% probability and the Maori Party an 80% probability of winning at least one seat and have expected electorate representation of 1.21 and 1.08 MPs respectively. Mana has an 89% probability of winning Hone Harawira’s Te Tai Tokerau electorate and the Maori Party a 75% probability of winning Te Uruoa Flavell’s Waiariki (steady). Labour is favoured to win Tariana Turia’s Te Hauauru electorate, with 86% probability. Pita Sharples’ Tamaki Makaurau electorate is safe for Labour with more than 90% probability it will be won by that party.

UnitedFuture and Act also look secure. UnitedFuture has an 81% probability of winning at least one seat and has expected electorate MP representation of 0.81 MPs. Its probability of winning Peter Dunne’s Ohariu electorate is 82%. Act continues to have a 78.0% probability of winning at least one electorate seat but its expected electorate representation has fallen to 0.77 MPs down from 0.99 last week. It has a 75% probability of winning Epsom

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

Other seats that may be in play are Napier, Port Hills and Waimakariri. Labour is expected to pick up Napier and Waimakariri from National, with 67% and 75% probability respectively, and hold on to Port Hills with 71% probability.

Election Result & Alternative Scenarios

Based on the party vote forecasts and the electorate results above, Parliament would be as follows: National 59 MPs (up from 58 last week), Labour 42 MPs (down from 43), the Greens 12 MPs (steady), Act 3 MPs (down from 4), the Maori Party 2 MPs (steady), UnitedFuture 1 MP (steady) and Mana 1 MP (steady). 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, the current National/MaoriParty/Act/UnitedFuture governing arrangement could continue with 65 MPs. Alternatively, National could also form a coalition with Act alone (62 MPs) or with the Maori Party alone (61 MPs). A Labour-led government would not be viable.

Given how close NZ First is to the 5% threshold, iPredict has also analysed what would happen if it did win 5%. In such a case, Parliament would be as follows: National 56 MPs, Labour 41 MPs, the Greens 11 MPs, NZ First 6 MPs, Act 3 MPs, and the Maori Party, Mana and UnitedFuture one MP each. Parliament would have 120 MPs a government would be required to have the support of 61 MPs on confidence and supply.

Under this scenario, the current National/Maori Party/Act/UnitedFuture governing arrangement could continue with 61 MPs. A National/Act/UnitedFuture arrangement would not be possible with only 60 MPs but a National/NZ First arrangement would have 62 MPs.

The only theoretical possibility for a Labour-led arrangement under this outcome would involve all 61 MPs from Labour, the Greens, NZ First, the Maori Party, Mana and UnitedFuture.

Should Winston Peters have the balance of power after the election, iPredict’s bundle of stocks forecasting NZ First’s decision-making indicates a 42% probability it would give confidence and supply to National (down from 44% last week), and a 37% probability it would give confidence and supply to Labour (up from 36% last week). The market also indicates an 11% probability (up from 10% last week) that NZ First would not give confidence and supply to any party, which would favour the larger bloc, and an 11% probability (up from 10% last week) that some other unexpected event could occur.

Overall, National is again up this week, with a 65% probability of leading the next government, up from 63% last week and 62% the week before.

Post Election Developments

The market indicates a 71% probability that David Cunliffe will depart as leader of the Labour Party by the end of 2015 (up from 62% last week and 59% the week before) and a 77% probability he will depart by the end of 2016 (up from 73% last week 70% the week before).

While still favoured, Grant Robertson’s chances of being the next Labour leader have fallen sharply this week. The Wellington Central MP now has 40% probability of being the next leader, compared with 48% last week and 50% the week before. Jacinda Ardern is next favourite but this week has just 17% probability, compared with 21% last week and 14.2% the week before.

The big winners in the Labour leadership race are Shane Jones and Andrew Little. Mr Jones now has 14% probability of being the next leader, up from 7% last week, while Mr Little is up to 11% from just 3% last week.

In National, there is a 36% probability John Key will depart as leader before the end of 2015 (down from 39% last week) but a 63% probability he will depart by the end of 2016 (up from 55% last week) and an 82% probability he will depart by the end of 2017 (up from 77% last week).

There has been a change over the last week in the expected next National Party leader. Steven Joyce is now favoured with 37% probability (up from 30% last week) ahead of Judith Collins with 30% probability (down from 31%). Simon Bridges is third favoured, on 13% probability (down from 14% last week).

Labour continues to be marginally favoured to win the 2017 election with 53.3% probability (steady).

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 2.21 pm today.

ENDS

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