iPredict Election Update #24

Monday 30 June 2014

www.ipredict.co.nz

Key Points:

• National on track for victory in 2014 and now 50:50 for 2017

• NZ First to hold balance of power should Colin Craig not win East Coast Bays

• Port Hills and Palmerston North now 50:50, with Waimakariri extremely tight

• Parker now second favourite to succeed Cunliffe

• Probability NZ is elected to UN Security Council or signs FTA with South Korea before 1 Dec 2014 slump

• Major economic forecasts unchanged

• Reserve Bank expected to raise OCR in July

Commentary:

The National Party remains favoured to gain re-election, however still needs either the support of the NZ First Party or the Conservatives to win an electorate, according to this week’s snapshot of the combined wisdom of the 7000 registered traders on New Zealand’s online predictions market, iPredict. Forecasts continue to indicate NZ First Leader Winston Peters will hold the balance of power unless the Conservatives win an electorate, with current forecasts showing Conservatives Leader Colin Craig still trailing in East Coast Bays. Sitting Labour MPs Ian Lees-Galloway and Ruth Dyson are now 50:50 with their National opponents in the Palmerston North and Port Hills electorates, while Labour’s Clayton Cosgrove is in a tight battle with National’s Matthew Doocey in Waimakariri. Meanwhile, Labour’s Deputy Leader David Parker has surged to second favourite to succeed David Cunliffe as Labour Party Leader while forecasts now indicate a dead heat between National and Labour for the 2017 election. All major economic forecasts are unchanged this week, with the Reserve Bank of New Zealand still expected to raise the OCR at its next review in July.

Economic Context

Growth expectations remain unchanged this week. Growth in the June quarter is still expected to be 1.0% (steady compared to last week), 1.0% in the September quarter (steady) and 1.1% in the December quarter (steady). Forecast annual growth for 2014 also remains 4.2% (steady).

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 are unchanged this week. The deficit is still expected to be 3.1% for the March 2014 quarter (steady compared with last week), 3.0% in the June quarter (steady), 3.7% in the September quarter(steady) and 3.9% in the December quarter (steady).

The probability of a fiscal surplus in 2014/15 remains unchanged at 86% (steady). The surplus forecast for 2014/15 is 0.43% of GDP (steady) while the forecast for the 2015/16 surplus is 0.974% of GDP (steady), and the forecast surplus for2016/17 remains 2.00% of GDP (steady).

Inflationary expectations are broadly unchanged this week and continue 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%, (steady), 1.6% in theSeptember quarter (steady) and 1.8% in the December quarter (up from 1.7%).

The market is forecasting a 80% probability that the Reserve Bank will increase the Official Cash Rate by a further 25 basis points at its next review on 24 July (down from 83% last week). Compared with the rate of 2.5% at the start of 2014, the market is pricing that the OCR will be up 95 basis points in July (down from 97), 104 in September (down from 105), 114 in October (down from 116), 124 in December (steady), 129 in January 2015 (steady) and 145 in March 2015(steady).

Other Issues

There is now just a 2% probability Judith Collins will lose all her ministerial portfolios before parliament is dissolved on 14 August, down from 4% last week, and 7% two weeks ago.

New Zealand’s chances of being elected to the UN Security Council for 2015-16 have plunged to 23% (down from 48%, last week). The probability Helen Clark will be appointed the next UN Secretary General is up slightly to 21% from 20% last week. The probability New Zealand will sign a Free Trade Agreement with South Korea before 1 December 2014 has slumped to 26% (down from 52% last week). 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, are strongly expected to remain in their roles until nomination day with at least 93% probability. The party vote turnout is now expected to be 73.4% (down from 77.7%) and below the 74.2% turnout in 2011.

Of major parties, National is expected to win 44.1% of the party vote, down marginally from 44.6% last week. Labour is down slightly to 28.6%, from 29.4% last week, while the Green Party is up to 11.5%, from 10.3% last week.

Of smaller parties, NZ First is expected to win 6.3% of the party vote, up from 6.1% last week. The Conservative Party’s forecast party vote has fallen to 3.4%, down from 3.9% last week, and is still short of the 5% threshold required for parliamentary representation unless it wins an electorate seat. Support for Act is 2.1% (up from 2.0% last week), while support for UnitedFuture remains at 0.5%. Amongst other smaller parties, the Internet Mana alliance is expected to win 2.1% (steady), the Maori Party 0.9% (up from 0.8%), and the Aotearoa Legalise Cannabis Party 0.2% (steady).

Electorate Contests

Act’s probability of winning at least one electorate seat is 82%, down from 83% compared to last week, and its expected electorate representation is now 0.82 MPs, up from 0.80 MPs. The market is pricing that it now has an 88% probability of winning Epsom (up from 82%).

The Conservative Party’s probability of winning at least one seat remains 36% (steady), and its expected electorate representation has fallen to 0.35 MPs from 0.37 MPs last week. The Conservatives are not expected to win any specific electorate, however have a 35% probability of winning in East Coast Bays (up from 33% last week) following confirmation that party leader Colin Craig will contest that electorate.

UnitedFuture has a 79% probability of winning at least one seat (steady compared to last week) and its expected electorate MP representation is 0.79 MPs (down from 0.80 MPs). Its probability of winning Peter Dunne’s Ohariu electorate remains 79% (steady).

In the Maori electorates, Mana now has an 80% probability of winning at least one seat (down from 85% last week) and its expected electorate representation is 0.98 electorate MPs, down from 1.1 MPs. The Maori Party has a 60% probability of winning a seat (up from 58%) and its expected electorate representation has increased to 0.75 MPs, up from 0.72 MPs.

Mana’s probability of winning Te Tai Tokerau is 79%, down from 83%, and its support has slipped again in Waiariki where it now has 33% probability of winning (down from 40% last week), behind Maori Party Leader Te Ururoa Flavell on 57% probability (steady). The probability the Maori Party will retain Tariana Turia’s Te Tai Hauauru electorate is 13% (down from 17%), with Labour favoured to win with 85% probability (up from 80%).

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

The six most marginal general seats, excluding the aforementioned Waiariki, East Coast Bays and Te Tai Tokerau electorates, are now Palmerston North, Port Hills, Waimakariri, Te Atatu, Napier and Tamaki Makaurau.

In Palmerston North, Labour’s Ian Lees-Galloway is in a dead-heat with National candidate and Palmerston North Mayor Jono Naylor, with Mr Lees-Galloway now having a 50% probability (down from 55%) of retaining the seat.

In Port Hills, support for Labour’s Ruth Dyson has plummeted and she now has just a 50% probability of retaining her seat (down from 65%), tied with National’s Nuk Korako who has a 50% probability (up from 38%).

In Waimakariri, Labour’s Clayton Cosgrove on 53% probability (down from 67%) is in a tight battle with National’s Matthew Doocey on 48% (up from 33%),

In Te Atatu, support for Labour’s Phil Twyford has increased and he now has a 60% probability of holding the seat (up from 55%), ahead of National challenger Alfred Ngaro on 40% (down from 45%).

In Napier, Labour’s Stuart Nash remains favoured to win the seat with 65% probability (down from 73%), while in Tamaki Makaurau, Labour’s Peeni Henare has a 67% probability of winning the seat (steady) currently held by retiring Maori Party MP Dr Pita Sharples.

Election Result & Alternative Scenarios

Based on the party vote forecasts and the electorate results above, Parliament would consist of: National 55 MPs, Labour 35 MPs, the Greens 14 MPs, NZ First 8 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, Act, United Future and the Maori Party would hold 60 seats and be short of the 61 seats required to form a government. National could govern with the support the NZ First party with whom it would hold 63 seats. However, Labour would also be able to form a government with Labour, Greens, NZ First, the Maori Party and Internet Mana forecast to hold a combined 61 seats. NZ First would therefore hold the balance of power and be in a position to choose whether New Zealand had a National or Labour government.

With growing speculation National may negotiate with the Conservative Party over an electorate accommodation, iPredict has also projected a scenario based on the party vote forecasts and the electorate results above, with the addition of the Conservative Party winning an electorate. Under that scenario, Parliament would consist of: National 53 MPs, Labour 34 MPs, Greens 14 MPs, NZ First 7 MPs, Act 3 MPs, Conservatives 4 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 support. National would be able to govern with the support of the Act and Conservative parties and one of UnitedFuture or the Maori Party, whom together would hold 61 seats. A National/NZ First/United Future government would hold 61 seats while a National, Conservative and NZ First Party government would hold 64 seats.

iPredict’s bundle of stocks forecasting NZ First’s decision-making should it hold the balance of power indicates Mr Peters would support a National-led Government. There is a 50% probability Mr Peters would support a National-led government (down from 54% last week) and a 6% probability he would give confidence and supply to neither (down from 7%) which would favour the larger bloc which the market indicates would be National-led. There is a 43% probability Mr Peters would support a Labour-led Government, up from 38% probability last week.

Overall, National now has an 81% probability of leading the next government, up from 80% last week.

Post Election Developments

David Cunliffe’s position as Labour leader for the remainder of the year has improved slightly this week, although his long-term future appears bleak. There is now a 53% probability he will depart as leader by the end of 2014 (down from 56% last week), however there is a 89% probability he will depart by the end of 2015 (up from 74%), a 92% probability he will depart by the end of 2016 (up from 78%), and a 99% probability he will depart by the end of 2017 (up from 87%).

Grant Robertson continues to be strongly favoured to succeed Mr Cunliffe. He has a 70% probability of being the next Labour leader (up from 66% last week), followed by David Parker on 16% (up from 5%), and Jacinda Ardern on 8% (down from 13%).

In National, John Key now has a 41% probability of departing as leader by the end of 2015 (down from 50% last week), a 63% probability of departing by the end of 2016 (down from 67%), and an 81% probability he will depart by the end of 2017 (down from 84%).

Steven Joyce remains favoured to succeed Mr Key as National Party leader, and has a 42% probability (up from 35% last week), followed by Judith Collins on 16% probability (up from 14%) and Simon Bridges on 10% (steady).

Labour’s chances of winning the 2017 election have fallen to 50% (down from 53%).

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 11.11 am today.

ENDS

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