IPREDICT LTD

2014 ELECTION UPDATE #10

Monday 17 March 2014

www.ipredict.co.nz

Key Points:

• NZ First forecast to secure over 5% to return to Parliament

• Maori Party or NZ First to decide next Prime Minister

• Key still favoured to win 2014 but would require support of all current support parties or a deal with NZ First

• OCR likely to be 3.5% by election

• Forecast 2015/16 fiscal surplus approaches 1% of GDP

• Cunliffe (80%) and Key (60%) both priced to be gone by end of 2016

• Despite controversies, Shane Jones and Judith Collins move into second favourite positions to next lead their parties, behind Robertson and Joyce

Commentary:

National’s likely party vote eased this week, according to the combined wisdom of the more than 7000 registered traders on New Zealand’s online predictions market, iPredict. While the party retains more than 70% probability of leading the next government, National’s support has slipped to a point it would now be dependent on the support of all of the ACT, United Future and Maori Parties to govern, or that of NZ First, which is forecast to be re-elected to Parliament. However, a Labour, Green, Mana, Maori, New Zealand First Government would also be possible based on current forecasts, meaning the Maori Party would share the balance of power with NZ First.

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 1.0% for the quarter, down from 1.1% last week. Quarterly growth is expected to be 1.1% in the March 2014 quarter (down from 1.2% last week), 1.2% in the June quarter (steady), 1.2% in the September quarter(steady) and 1.2% in the December quarter (down from 1.3% last week). Annual growth for 2014 is now forecast to be 4.7% (down from 4.9% last week).

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 also steady. The current account deficit is expected to have been 3.1% of GDP in the December 2013 quarter (steady), and to be 3.3% in the March 2014 quarter (steady), 3.5% in the June quarter (steady), 4.0% in the September quarter and 4.0% in the December quarter (both steady).

Expectations for a fiscal surplus in 2014/15 remain unchanged this week. There is a 94% probability of a fiscal surplus in 2014/15, (steady), with the surplus in 2014/15 expected to be 0.49% of GDP (steady). However, the surplus for 2015/16 is now expected to be 0.93% of GDP (up from 0.82% last week), and 2.0% of GDP for 2016/17 (steady).

Inflationary expectations are broadly 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 quarter is expected to be 1.6% (steady) and will rise to 1.9% in the June quarter (steady), 2.0% in the September quarter (down from 2.1% last week) and 2.10% in the December quarter (steady).

Having correctly forecast that the Reserve Bank of New Zealand would raise the Official Cash Rate (OCR) on 13 March, the market is now forecasting a further 25 basis point increase at the next OCR Review on 24 April.

Compared with the rate of 2.5% at the beginning of the yearthe market is pricing that the OCR will be up 48 basis points in April (up from 43 points last week), 68 in June (up from 62), 81 in July (up from 76), 92 in September (up from 84), 101 in October (up from 94) and 113 in December (up from 106).

Other Issues

New Zealand’s chances of being elected to the UN Security Council for 2015-16 have fallen to 39%, down from 55% last week. The probability New Zealand will sign a Free Trade Agreement with South Korea before 1 December 2014 remains steady at 47%.

The probability the US Congress will ratify the yet-to-be-signed Trans Pacific Partnership (TPP) agreement before 1 July 2015 has fallen to 2.5% (down from 3% last week), but there is now a 37.5% probability a deal will be ratified by the US Congress by 1 July 2017 (up from 35% last week).

Election Personnel & Turnout

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.

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

Party Vote

Of major parties, National has slightly lost ground, and is expected to win 43.74% of the party vote, down from 44.23% last week. Labour is unchanged on 31.71%, while the Green Party’s expected vote is also steady on 9.74%.

Of smaller parties, NZ First has continued its recent increases in support, and is now expected to narrowly reach 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 5.07% of the party vote, up from 4.97% last week and 4.94% the week before.

The Conservative Party is up slightly this week to 3.88% (up from 3.73% last week).

Act remains below 2%. The party is now forecast to win 1.69% of the party vote, compared with 1.72% of the party vote last week, 2.18% the preceding week, 2.86% three weeks ago, and 2.10% four weeks ago.

Mana’s forecast party vote continues to rise and is now 1.09%, up from 0.96% last week and 0.40% the week before.

The Maori Party is forecast to receive 1.19% of the party vote (up from 1.15%), while the Internet Party is broadly steady on 0.89% (up from 0.84%). UnitedFuture is now on 0.50 (up from 0.48%),Aotearoa Legalise Cannabis Party on 0.30 (up from 0.29%), and the Civilian Party and Democrats for Social Credit on 0.10% each (both steady).

Electorate Contests

The Conservative Party continues to have just a 35% probability of winning at least one electorate seat (steady). Its 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 12% probability of winning Upper Harbour (down from 16% last week), and a 12% probability of winning Rodney (steady).

The four other small parties in parliament all appear safe.

Mana has a 90% probability of winning at least one electorate seat (down from 92% last week) and the Maori Party an 82% probability of winning at least one seat (steady). Mana’s expected electorate representation is down marginally, to 1.28 electorate MPs, from 1.33 last week. The Maori Party is unchanged, and is expected to have 1.11 electorate MPs.

Mana’s electorate seat is almost certain to be Te Tai Tokerau, with 90% probability (steady).

The Maori Party’s chances of retaining Te Uruoa Flavell’s Waiariki electorate have increased to 71%, (up from 69% last week) although the party now has only a 23.2% probability of winning Tariana Turia’s Te Hauauru electorate, down from 27% last week. Pita Sharples’ Tamaki Makaurau electorate remains safe for Labour with 90% probability it will be won by that party.

UnitedFuture and Act have both gained ground this week and are fairly secure.

UnitedFuture has a 78% probability of winning at least one seat (up from 78% last week) and has expected electorate MP representation of 0.84 MPs, up from 0.79 last week. Its probability of winning Peter Dunne’s Ohariu electorate is 83%, up from 73% last week.

Act has a 77% probability of winning at least one electorate seat (up from 70% last week) and its expected electorate representation has increased to 0.77 MPs up from 0.74 last week. It has a 71% probability of winning Epsom (up from 65% last week).

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

Other than those mentioned above, the four other most marginal seats are Napier, Port Hills, Rotorua and Waimakariri. While the race has tightened, Labour is expected to pick up Napier and Waimakariri from National, with 59% and 69% probability respectively, and hold on to Port Hills with 79% probability. National’s support in Rotorua has slipped slightly this week, although it is still expected to hold the electorate with 71% probability.

Election Result & Alternative Scenarios

Based on the party vote forecasts and the electorate results above, Parliament would be as follows: National 56 MPs (down from 59), Labour 40 MPs (down from 42), the Greens 12 MPs (down from 13 last week), NZ First 6 MPs (up from 0 last week), Act 2 MPs (steady), 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 61 MPs. Alternatively, National could form a coalition with NZ First (62 MPs) but would be unable to govern with Act alone (58 MPs) or with the Maori Party alone (58 MPs). A Labour-led government, would require the support of the Green, NZ First, Mana and Maori parties (61 MPs), meaning that, depending on the Maori Party’s decision-making, NZ First could 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 there is now a 50% probability it would provide confidence and supply to a Labour-led government (up from 44% last week). There is a 36% probability (down from 38% last week) it would provide confidence and supply to a National-led government, and an 14% probability it would not give confidence and supply to anyone, which would favour the biggest bloc, which is currently forecast to consist of National/Act/UnitedFuture.

Overall, National has a 73% probability of leading the next government, up marginally from 72% last week, 65% the week before and 63% three weeks ago.

Post Election Developments

The market now indicates a 78% probability that David Cunliffe will depart as leader of the Labour Party by the end of 2015 (up from 76% last week, 71% the week before and 62% three weeks ago). There is an 80% chance he will depart by the end of 2016 (no change from last week, up from 77% the week before, and 73% three weeks ago).

Grant Robertson’s chances of succeeding Mr Cunliffe remain unchanged this week at 50%. Shane Jones is now second favourite with 17% probability, up from 15% last week. Support for both Jacinda Ardern and Andrew Little has fallen, and they now have 13% and 11% respectively.

In National, there is a 37% probability John Key will depart as leader before the end of 2015 (up from 36% last week), a 60% probability he will depart by the end of 2016 (steady) and an 80% probability he will depart by the end of 2017 (steady).

Steven Joyce remains the favourite to succeed Mr Key as National Party leader, although his support has fallen to 32.5% probability (down from 43% last week). Judith Collins has returned to is second favourite with 22% probability (up from 20% last week), just ahead of Simon Bridges who has slipped back to 19% probability, from 23% last week).

Labour’s chances of winning the 2017 election have improved this week, with a 55% probability they will be successful, up from 52% last week.

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 10.04 am today.

ENDS

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