Key Points:
• Inflation and interest rate expectations ease marginally
• 31% probability Helen Clark will become UN Secretary General
• Ruth Dyson in trouble in Port Hills
• Act gains over last week with 3 MPs now forecast
• Conservatives’ chanced edge up in East Coast Bays
• Mana/Internet would win 3 MPs
• NZ First to hold balance of power and allow National to govern

Commentary:

iPredict’s 7000 registered traders continue to believe Winston Peters’ NZ First party will hold the balance of power after the election and allow National to govern. There has been a small gain to Act and the Conservatives over the last week and a weakening of the Maori Party’s position. A Mana/Internet electoral arrangement is expected to give the parties 3 MPs. Port Hills has become the most marginal seat in the country followed by Hamilton East. Inflation and interest rate expectations have eased.

Economic Context
Growth expectations have eased fractionally again this week. Growth in the March 2014 quarter is expected to be 1.0% (steady compared with last week), in the June quarter 1.1% (steady), in the September quarter 1.1% (down from 1.2%) and in the December quarter 1.1% (steady). Forecast annual growth for 2014 is now 4.4%, down from 4.5% last week.

There have been no changes to unemployment expectations. Unemployment is expected to be 5.8% in the March 2014 quarter (steady compared with last week), 5.6% in the June quarter (steady), 5.4% in the September quarter (steady) and 5.5% in the December quarter (steady).

Forecasts for New Zealand’s current account deficit are again unchanged at 3.0% for the March 2014 quarter, 3.5% in the June quarter, 4.0% in the September quarter and 4.0% in the December quarter.

The probability of a fiscal surplus in 2014/15 has recovered to 95% from 94% last week. The surplus forecast for 2014/15 is 0.51% of GDP, up from 0.50% last week. The 2015/16 surplus is expected to be 0.93% of GDP and 2.0% of GDP for 2016/17 (both steady).

Inflationary expectations have again fallen marginally this week. Annual inflation to the end of the March quarter was 1.5%, slightly below iPredict’s forecast last week of 1.6%. Annual inflation is expected to remain below the Reserve Bank’s 2% target midpoint through 2014. Annual inflation to the end of the June quarter is expected to be 1.7%, down from 1.8% last week), 1.7% in the September quarter (steady) and 1.9% in the December quarter (steady).

The market was this morning forecasting a 98.3% probability that the Reserve Bank would increase the Official Cash Rate (OCR) by 25 basis points, up from 92.2% last week. Compared with the rate of 2.5% at the start of 2014, the market was pricing that the OCR would be up 50 basis points in April (up from 48 last week), 66 inJune (down from 67,) 82 in July (down from 83), 93 in September (down from 95), 103 in October (down from 106), 116 in December (down from 118), 126 in January 2015 (new stocks) and 141 in March 2015 (new stocks).

Other Issues
New Zealand’s chances of being elected to the UN Security Council for 2015-16 are up to 52% from 43% last week. The probability Helen Clark will be appointed the next UN Secretary General is 31% (new stock). The probability New Zealand will sign a Free Trade Agreement with South Korea before 1 December 2014 is steady at 47%.

The probability the US Congress will ratify the yet-to-be-signed Trans Pacific Partnership (TPP) agreementbefore 1 July 2015 remains steady at 2.5%, and there remains just a 37.8% probability a deal will be ratified by the US Congress by 1 July 2017.

Party Vote
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. The party vote turnout is expected to be 74.4% (down from 74.7% last week), marginally up from the 74.2% turnout in 2011.

Of major parties, National is expected to win 43.46% of the party vote, down from from 43.87% last week. Labour is down to 30.17% compared with 30.51% last week, while the Green Party’s expected vote is up 10.69%, from 10.17% last week.

Of smaller parties, NZ First is down fractionally to 5.29% from 5.42% last week. The Conservative Party’s forecast party vote is down slightly to 3.53%, from 3.61% last week, and is still short of the 5% threshold required for parliamentary representation unless it wins an electorate seat. Act is up to 2.25% from 1.81% last week and UnitedFuture is on 0.59%, basically steady compared with 0.60% last week.

Mana is on 1.08% (down from 1.10% last week), the Maori Party on 1.08% (down from 1.10%) the Internet Party on 1.37% (down from 1.51%) and Aotearoa Legalise Cannabis Party on 0.29% (down from 0.30%).

Electorate Contests
The Conservative Party’s probability of winning at least one seat is up to 34% from 31% last week, and its expected electorate representation is up to 0.36 MPs, from 0.27 last week. The Conservatives are not expected to win any specific electorate, but their probability of winning East Coast Bays is up to 29% from 20% last week. The party continues to have a 12% probability of winning Upper Harbour and a 12% probability of winning Rodney (both steady).

Act’s probability of winning at least one electorate seat has recovered to 70% from 62% last week and its expected electorate representation is up to 0.71 MPs, from 0.60 last week. It has a 71% probability of winningEpsom (up from 60% last week).

UnitedFuture prospects have eased marginally this week. It now has a 77% probability of winning at least one seat (down from 81% last week) and has expected electorate MP representation of 0.79 MPs (down from 0.80 last week). Its probability of winning Peter Dunne’s Ohariu electorate remains 79% (down from 80%).

In the Maori electorates, both Mana and the Maori Party have weakened. Mana now has a 79% probability of winning at least one seat (down from 85% last week) and the Maori Party just a 57% probability of winning a seat (down from 66% last week). However, Mana’s expected electorate representation is up to 1.13 electorate MPs, from 1.08 MPs, last week. The Maori Party’s expected electorate representation is down to 0.71 MPs, from 0.76 last week.

Mana’s probability of winning Te Tai Tokerau has fallen to 75% from 82% last week but the probability it will win Waiariki has reached 43% behind Maori Party Leader Te Ururoa Flavell on 55% probability, down from 65% last week. The probability the Maori Party will retain Tariana Turia’s Te Hauauru electorate is back to 20% from 14% last week but Labour is still overwhelmingly favoured to win with 80% probability.

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

Port Hills, held by Labour’s Ruth Dyson, is now the most marginal electorate in the country, with just a 53% probability she will retain it over a National Party challenger.

National’s David Bennett is also in trouble in Hamilton East, with just a 55% chance of retaining his seat ahead of his Labour challenger, Cliff Allen.

Labour’s Phil Twyford may also struggle in Te Atatu, with just a 62% probability he will hold it over a National challenger.

Other marginal seats are Napier, Wairarapa, Waimakariri and West Coast-Tasman. Labour’s Stuart Nash now has a 69% probability (down from 75% last week) of taking Napier from National. In Wairarapa, National has a 73% of holding the seat (down from 75% last week), Labour’s Clayton Cosgrove has a 75% probability of taking Waimakariri from National (up from 71%) and. and Labour has a 75% probability of holding on to West Coast-Tasman.

In Rotorua, National’s Todd McClay is looking safer, now has a 80% of retaining his seat against challenger Tamati Coffey, up from 71% last week.

Election Result & Alternative Scenarios
Based on the party vote forecasts and the electorate results above, Parliament would be as follows: National 55 MPs (down from 56 last week), Labour 38 MPs (down from 39), the Greens 14 MPs (up from 13), NZ First 7 MPs (steady), Act 3 MPs (up from 2), and Mana, the Maori Party and UnitedFuture 1 MP each. 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/Maori Party/Act/UnitedFuture governing arrangement would have only 60 seats and could not form a government. Nor could Labour/Green/Mana/NZ First which would also have only 60 seats. A five-party Labour/Green/Mana/NZ First/Maori Party government would be possible with 61 seats as would a two-party National/NZ First government with 62 seats.

In light of speculation about a Mana/Internet Party arrangement, iPredict has also modelled what would happen if the parties merged for the purposes of the party vote and maintained their combined forecast party vote of 2.45%. Under such a scenario, National would have 54 seats, Labour 38, the Greens 13, NZ First 7, Mana/Internet 3, Act 3 and the Maori Party and UnitedFuture 1 each. 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, NZ First would clearly have the balance of power. The current National/Maori Party/Act/UnitedFuture governing arrangement would have only 59 MPs and a Labour/Green/Mana-Internet combination 54 MPs. However, a Labour/Green/Mana-Internet/NZ First government would have 61 MPs, as would a National/NZ First government.

Should Winston Peters have the balance of power after the election, iPredict’s bundle of stocks forecasting NZ First’s decision-making indicates a National-led government could be formed. There is a 47% probability he would give confidence and supply to Labour (down from 51% last week), a 34% probability he would give confidence and supply to National (up from 24% last week), and a 19% probability he would give confidence and supply to neither (down from 24% last week), which would allow the National bloc to govern.

Overall, National now has a 73% probability of leading the next government, up from 70% last week. Five months before the 2011 election, National had an 87% chance of being re-elected.

Post Election Developments
David Cunliffe’s position as Labour leader has improved this week. There is now only a 68% probability he will depart as leader by the end of 2015, down from 71% last week, a 74% chance he will depart by the end of 2016 (down from 77% last week) and an 82% probability he will step down by the end of 2017 (down from 84%).

Grant Robertson and Jacinda Ardern appear to be the winners from Shane Jones’ departure from parliament. Mr Robertson has a 60% probability of being the next Labour leader, up from 52% probability last week, followed by Ms Ardern with 24% probability (up from 11% last week). Andrew Little is down to 7% probability, compared with 9% last week.

In National, there is a 33% probability John Key will depart as leader before the end of 2015 (down from 36% last week), a 54% probability he will depart by the end of 2016 (down from 61%) and a 79% probability he will depart by the end of 2017 (up from 78%).

Steven Joyce remains the favourite to succeed Mr Key as National Party leader, with 37% probability (up from 35%) compared with last week), followed by Judith Collins on 27% probability (down from 31%)

Labour’s chances of winning the 2017 election are steady on 53%.

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 8.14 am today.

ENDS

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