iPredict Ltd 2014 Election Update #19: 30 May 2014

www.ipredict.co.nz

Key Points:
• Internet Mana forecast to win 3 seats
• National expected to sneak in with minor parties’ support
• Tight race in Waiariki and Palmerston North, while Labour now favoured to win Hamilton East
• Growth and unemployment expectations unchanged
• Probability of fiscal surplus in 2014/15 falls

Commentary:

Prime Minister John Key remains on track to secure a third term in Government, according to the combined wisdom of the 7000 registered traders on New Zealand’s online predictions market, iPredict. National would, however, require the support of all three of its current support parties – ACT, UnitedFuture and the Maori Party – in order to be able to govern without having to rely on Winston Peters’ NZ First Party. Following the announcement of a formal alliance between the Mana and Internet parties, the combined Internet Mana Party is now forecast to win 3 seats. Despite this, a coalition involving Labour, Green, NZ First, Internet Mana and the Maori Party would still be short of the 61 seats required to govern. Palmerston North and Waiariki remain the tightest electorate battles in the country with Labour’s Ian Lees-Galloway and Maori Party Co-Leader Te Ururoa Flavell narrowly favoured to retain their respective seats, while Labour has edged ahead in the Hamilton East electorate currently held by National MP David Bennett. In economic forecasts, growth and unemployment remain steady and the Reserve Bank is again expected to increase the OCR at its next review on 12 June.

Economic Context

Growth expectations are unchanged this week. Growth in the March 2014 quarter is expected to be 1.0% (steady compared with last week), 1.0% in the June quarter(steady), 1.1% in the September quarter (steady) and 1.1% in the December quarter(steady). Forecast annual growth for 2014 remains 4.3%.

Unemployment expectations are also unchanged this week. Unemployment is expected to be 5.7% in the June quarter (steady compared with last week), 5.5% in the September quarter (steady) and 5.5% in the December quarter (steady).

Forecasts for New Zealand’s current account deficit are now 3.1% for the March 2014 quarter (up from 2.9% last week), 3.3% in the June quarter (down from 3.5% last week), 3.9% in the September quarter (steady) and 3.9% in the December quarter(steady).

The probability of a fiscal surplus in 2014/15 has fallen to 84% (down from 94% last week). The surplus forecast for 2014/15 is 0.43% of GDP (down from 0.45% last week), while the forecast for the 2015/16 surplus is 0.974% of GDP (steady), and the forecast surplus for 2016/17 remains 2.00% of GDP (steady).

Inflationary expectations remain below the Reserve Bank’s 2% target midpoint through 2014. Annual inflation to the end of the June quarter is expected to be 1.6%, (down from 1.7% last week), 1.6% in the September quarter (steady) and 1.7% in theDecember quarter (steady).

The market is forecasting a 84% probability that the Reserve Bank will increase the Official Cash Rate (OCR) by 25 basis points at its next review on 12 June (up from 82% last week). Compared with the rate of 2.5% at the start of 2014, the market is pricing that the OCR will be up 71 basis points in June (steady), 82 in July (down from 84), 90 in September (down from 92), 100 in October (down from 102), 108 inDecember (down from 116), 117 in January 2015 (down from 127) and 133 in March 2015 (down from 143).

Other Issues

There is now just a 19% probability Judith Collins will lose all her ministerial portfoliosbefore parliament is dissolved on 14 August, down from 25% last week and 57% two weeks ago.

New Zealand’s chances of being elected to the UN Security Council for 2015-16remain 30%, unchanged from last week, and down from 53% three weeks ago and 60% four weeks ago. The probability Helen Clark will be appointed the next UN Secretary General has increased to 31%, up from 22% last week, although is still short of the 40% recorded three weeks ago. The probability New Zealand will sign aFree Trade Agreement with South Korea before 1 December 2014 is down slightly from 53% last week to 52%.

The probability the US Congress will ratify the yet-to-be-signed Trans Pacific Partnership (TPP) agreement before 1 July 2015 is 11% (steady), and there remains a 35% probability a deal will be ratified by the US Congress by 1 July 2017, (steady).

Party Vote

All current party leaders, except for Maori Party co-leader Tariana Turia and NZ First Leader Winston Peters, are strongly expected to remain in their roles until nomination day with at least 95% probability. The probability Mr Peters will lead NZ First on nomination day has slipped to 93%. The party vote turnout is expected to be 76.9% (up from 76.3% last week), up from the 74.2% turnout in 2011.

Of major parties, National is expected to win 44.68% of the party vote, up from 43.67% last week. Labour is down to 28.71%, from 29.22% last week, while theGreen Party is down marginally to 10.24%, from 10.54% last week.

Of smaller parties, NZ First is expected to win 5.7% of the party vote, up from 5.6% last week. The Conservative Party’s forecast party vote is up slightly to 3.8% from 3.6% last week, although is short of the 5% threshold required for parliamentary representation unless it wins an electorate seat. Act is down to 2.3% from 3.4% last week and UnitedFuture is up to 0.5% from 0.4% last week.

The newly announced Internet Mana alliance is expected to win 2.6%, up from their combined 2.1% as separate parties last week. The Maori Party is on 1.0%, up from 0.9% last week, while the Aotearoa Legalise Cannabis Party has made a marginal gain to 0.32% from 0.31% last week.

Electorate Contests

Act’s probability of winning at least one electorate seat is now 83%, down from 85% last week, although its expected electorate representation is unchanged on 0.83 MPs and the market is still pricing that it has an 85% probability of winning Epsom(steady).

The Conservative Party’s probability of winning at least one seat is now 35%, up from 32% last week, and its expected electorate representation has risen to 0.37 MPs from 0.36 two weeks ago. The Conservatives are not expected to win any specific electorate. Their probability of winning East Coast Bays is 31% (up from 30% last week), their probability of winning Rodney remains 11% (steady), and they have regained second place in Upper Harbour behind National, although are seen as having just 8% probability (up from 6% last week) of victory.

UnitedFuture prospects remain broadly unchanged this week. It has a 79% probability of winning at least one seat (up from 78% last week) and has expected electorate MP representation of 0.77 MPs (steady). Its probability of winning Peter Dunne’s Ohariu electorate remains 79% (steady).

In the Maori electorates, following its announcement of a formal alliance with theInternet Party, Mana now has a 75% probability of winning at least one seat (down from 88% last week) and its expected electorate representation is 1.0 electorate MPs (steady). The Maori Party now has just a 53% probability of winning a seat (down from 62% last week) and its expected electorate representation has fallen to 0.61 MPs (down from 0.74 MPs).

Mana’s probability of winning Te Tai Tokerau is 75%, down from 87% last week, although the probability it will win Waiariki has increased to 45% (from 38% last week) behind Maori Party Leader Te Ururoa Flavell on 53% probability (down from 60% last week). The probability the Maori Party will retain Tariana Turia’s Te Hauauru electorate remains 17% (steady), with Labour favoured to win with 83% probability.

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

The six most marginal general seats, excluding Waiariki and East Coast Bays, are now Palmerston North, Hamilton East, Te Atatu, Napier, Port Hills and Rotorua.

In Palmerston North, Labour’s Ian Lees-Galloway has edged ahead and now has a 53% probability (up from 50% last week) of retaining the seat from National candidate and Palmerston North Mayor Jono Naylor who has 48% probability (down from 50%).

In Hamilton East, Labour candidate Dr Cliff Allen has now overtaken National incumbent David Bennett and has a 55% probability of winning the seat, with Mr Bennett now trailing with 48% (down from 55% last week).

In Te Atatu, Labour’s Phil Twyford has 65% probability of holding the seat, down from 75% last week, while Labour’s Stuart Nash has 67% probability of winning the Napierseat.

In Port Hills, Labour’s Ruth Dyson now has 69% probability of holding the seat, up from 62% last week, and in Rotorua, National’s Todd McClay has moved ahead of Labour’s Tamati Coffey and has 71% probability of retaining the seat, up from 57% probability last week.

Election Result & Alternative Scenarios

Based on the party vote forecasts and the electorate results above, a Parliament would consist of: National 56 MPs, Labour 36 MPs, the Greens 13 MPs, NZ First 7 MPs, Act 3 MPs, Internet Mana 3 MPs and 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, National would be able to form a government with the support of the Act, UnitedFuture and Maori parties who together would hold 61 seats, or with NZ First which would give it 63 seats. There is no viable scenario where the Labour Party could form a government, with a potential Labour/Green/Internet Mana/NZ First/Maori Party coalition holding 60 seats, 1 sort of the 61 required.

Should Winston Peters have the balance of power after the election, iPredict’s bundle of stocks forecasting NZ First’s decision-making indicates Mr Peters would support a National-led Government. There is now a 53% probability he would give confidence and supply to National (down from 58% last week) and a 35.5% probability he would give confidence and supply to Labour (up from 33.5% last week). There is a 10.5% probability he would give confidence and supply to neither (up from 8% last week), which would favour the larger bloc, which the market indicates would be National-led.

Overall, National now has a 74% probability of leading the next government, up from 72% last week.

Post Election Developments

David Cunliffe’s position as Labour leader has improved marginally. There remains a 70% probability he will depart as leader by the end of 2015, unchanged from last week, a 75% chance he will depart by the end of 2016, down from 76% last week, and an 85% probability he will step down by the end of 2017, down from 87% last week.

Grant Robertson continues to be strongly favoured to succeed Mr Cunliffe. He has a 65% probability of being the next Labour leader (down from 66% last week), followed by Jacinda Ardern on 14% (steady) and Andrew Little on 13% (steady).

In National, John Key now has a 53% probability of departing as leader by the end of 2015 (down from 54% last week), a 69% probability of departing by the end of 2016 (steady) and an 85% probability he will depart by the end of 2017 (down from 86%).

Steven Joyce remains favoured to succeed Mr Key as National Party leader, with 47% probability (down from 52% last week), followed by Judith Collins who dips slightly to 17% probability (down from 20% last week) and Simon Bridges on 8% (steady).

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 9.09 am today.

ENDS

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