IPREDICT LTD

2014 ELECTION UPDATE #9

Wednesday 12 March 2014

www.ipredict.co.nz

Key Points:

• Interest rates certain to rise tomorrow

• National strengthens advantage over Labour but would need to rely on Peters if NZ First returns

• Bridges replaces Collins as second favourite to succeed Key behind Joyce

• Labour loses ground to Greens and Mana, which has more than doubled its support

• Cunliffe 76% likely to depart as Labour leader by end of 2015, with Robertson picked to take over

• 2017 election too close to call

Commentary:

National’s political position has significantly strengthened this week, according to the combined wisdom of the more than 7000 registered traders on New Zealand’s online predictions market, iPredict. The party now has over 70% probability of leading the next government, with or without the backing of Winston Peters’ NZ First Party which is now within a whisker of the 5% threshold. Judith Collins’ chances of succeeding John Key have tumbled, with Steven Joyce now favoured with 43% probability, ahead of Simon Bridges in second place with 23% probability. David Cunliffe now has a 76% probability of losing the Labour leadership by the end of next year, and is expected to be succeeded by Grant Robertson. The 2017 election is too close to call.

Economic Context

Growth expectations have remained broadly steady this week. The market expects that Statistics New Zealand will report on 20 March that growth in the December 2013 quarter was 1.1% for the quarter, down from 1.2% last week. Quarterly growth is expected to be 1.2% in the March 2014 quarter (steady), 1.2% in the June quarter (steady), 1.2% in the September quarter (steady) and 1.3% in the December quarter (up from 1.2% last week). Annual growth for 2014 continues to be forecast to be 4.9% (steady).

Expectations for the unemployment rate are all stable. Unemployment continues 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 largely steady. The current account deficit is expected to have been 3.1% of GDP in the December 2013 quarter (up from 3.0% last week), and to be 3.3% in the March 2014 quarter (down from 3.4% last week), 3.5% in the June quarter (steady), 4.0% in the September quarter and 4.00% in the December quarter (both steady).

Expectations for a fiscal surplus in 2014/15 have recovered this week. There is now a 94% probability of a fiscal surplus in 2014/15, up from 90% last week. The surplus in 2014/15 is now expected to be 0.49% of GDP, up from 0.47% 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 (all steady).

The market is overwhelmingly of the view the Reserve Bank of New Zealand will raise the Official Cash Rate (OCR) tomorrow, 13 March, with a 98% probability it will do so, up from 91% last week.

Compared with the current rate of 2.50%, the market is pricing that the OCR will be up 43 basis points in April (up from 42 points last week), 62 in June (up from 61), 76 in July (up from 74), 84 inSeptember (down from 86), 94 in October (down from 96) and 106 in December (down from 108).

Other Issues

New Zealand’s chances of being elected to the UN Security Council for 2015-16 have improved to 55%, up from 43% last week. The probability New Zealand will sign a Free Trade Agreement with South Korea before 1 December 2014 is up marginally to 47% from 45% last week.

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

The market correctly forecast the election month of September, but expected the day to be 27 September, a week later than the Prime Minister’s chosen date of 20 September.

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 93% probability.

Party Vote

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

Of major parties, National is expected to win 44.23% of the party vote, down from 44.28% last week. Labour has also lost slightly more ground, and is now on 31.71%, down from 32.14 last week. The Green Party’s expected vote has recovered to 9.74%, compared with 8.96% last week.

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%, but continues to creep up. Winston Peters’ party is expected to win 4.97% of the party vote, up from 4.94% last week and 4.92% the week before.

The Conservative Party is back to 3.73% from 4.15% last week.

Act is now below 2%. The party is now forecast to win 1.72% of the party vote, compared with 2.18% last week, 2.86% the week before, 2.10% three weeks ago and 2.30% four weeks ago.

Mana’s forecast party vote has more than doubled in the last week and is now 0.96% compared with 0.40% last week.

The Maori Party is broadly steady on 1.15%, as are the Internet Party on 0.84%, UnitedFuture on 0.48%, Aotearoa Legalise Cannabis Party on 0.29%, and the Civilian Party and Democrats for Social Credit on 0.10% each.

Electorate Contests

The Conservative Party continues to have just a 35% probability of winning at least one electorate seat (steady). It’s expected representation remains just 0.39 MPs.

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, (steady), a 16% probability of winningUpper Harbour (up from 6% last week), and a 12% probability of winning Rodney (steady).

The four other small parties in parliament all appear safe.

Mana has a 92% probability of winning at least one electorate seat (up from 91% last week) and the Maori Party an 82% probability of winning at least one seat (up from 80% last week). Mana’s expected electorate representation is also up, to 1.33 electorate MPs, up from 1.21 last week. The Maori Party is also up, to an expected 1.11 electorate MPs from 1.08 last week.

Mana’s electorate seat is almost certain to be Te Tai Tokerau, with 90% probability, up from 89% last week.

The situation is more dynamic for the Maori Party. The party has only a 69% probability of retaining Te Uruoa Flavell’s Waiariki electorate (down from 75% last week) but now has a 27% probability of winning Tariana Turia’s Te Hauauru electorate, up from 15% last week. Pita Sharples’ Tamaki Makaurau electorate is safe for Labour with 90% probability it will be won by that party.

UnitedFuture and Act have both lost ground this week but remain fairly secure.

UnitedFuture has a 78% probability of winning at least one seat (down from 81% last week) and has expected electorate MP representation of 0.79 MPs, down from 0.81 last week. Its probability of winning Peter Dunne’s Ohariu electorate is 73%, down from 82% last week.

Act has a 70% probability of winning at least one electorate seat (down from 78% last week) and its expected electorate representation has fallen to 0.74 MPs down from 0.77 last week. It has a 65% probability of winning Epsom (down from 75% last week).

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

The four other most marginal seats are Napier, Port Hills, Rotorua and Waimakariri. Labour is expected to pick up Napier and Waimakariri from National, with 65% and 75% probability respectively, and hold on to Port Hills with 73% probability. National is expected to hold on to Rotorua with 73% probability.

Election Result & Alternative Scenarios

Based on the party vote forecasts and the electorate results above, Parliament would be as follows: National 59 MPs (steady), Labour 42 MPs (steady), the Greens 13 MPs (up from 12 last week), Act 2 MPs (down from 3), 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 64 MPs. Alternatively, National could also form a coalition with Act alone (61 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 12 MPs, NZ First 6 MPs, Act 2 MPs, and the Maori Party, Mana and UnitedFuture one MP each. Parliament would have 120 MPs, meaning 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 not continue alone, having just 60 MPs. But nor would a Labour/Green/Mana/Maori party government be viable. This means that NZ First would have the balance of power.

Should Winston Peters have the balance of power after the election, iPredict’s bundle of stocks forecasting NZ First’s decision-making indicates a 44% probability it would provide confidence and supply to a Labour-led government. However, there is a 38% probability (down from 42% last week) it would provide confidence and supply to a National-led government, and an 18% probability it would not give confidence and supply to anyone, which would favour the biggest bloc, which is currently forecast to consist of National/Maori Party/Act/UnitedFuture.

Overall, National is up sharply this week, with a 72% probability of leading the next government, up from 65% last week, 63% the week before and 62% three weeks ago.

Post Election Developments

The market now indicates a 76% probability that David Cunliffe will depart as leader of the Labour Party by the end of 2015 (up from 71% last week, 62% the week before and 59% three weeks ago). There is an 80% chance he will depart by the end of 2016 (up from 77% last week, 73% the week before and 70% three weeks ago).

Grant Robertson’s chances of succeeding Mr Cunliffe have recovered to 50% this week, up from 40% last week. Jacinda Ardern remains second favourite with 18% probability, up from 17% last week. Shane Jones is on 15% probability, up from 14% last week and Andrew Little is on 13%, up from 11%.

In National, there remains a 36% probability John Key will depart as leader before the end of 2015 (steady), a 60% probability he will depart by the end of 2016 (down from 63% last week) and an 80% probability he will depart by the end of 2017 (down from 82% last week).

Judith Collins’ chances of being the next National Party leader have fallen sharply, with just 20% probability of succeeding Mr Key, down from 30% last week. Steven Joyce is the main winner, with 43% probability of being the next leader, up from 37% probability last week. The other big winner from Ms Collins’ weakening position is Simon Bridges, who moves into the second-favourite position, with 23% probability of succeeding Mr Key compared with 13% last week.

The 2017 election has narrowed slightly. Labour now has a 52% probability of winning in 2017, down from 53% in recent weeks.

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 2.08 pm today.

ENDS

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