iPredict LTD

New Zealand Weekly Economic & Political Update

Monday 25 May 2015

FOR IMMEDIATE RELEASE

www.ipredict.co.nz

Budget Boosts National And Key, But PM Still Expected to Retire by End of 2017

Last week’s New Zealand Budget has boosted the ruling National Party and its leader John Key, according to the combined wisdom of the 8000+ registered traders on New Zealand’s predictions market, iPredict. National has a 61% probability of leading the next government, despite Winston Peters’ NZ First Party now leaning towards Labour. After a dip following the so-called “ponytailgate” affair, Mr Key now has an 82% chance of remaining leader of his party through to the end of 2016 and nearly a 50% probability ofleading it into the election campaign. There is however just a 15% probability he will remain leader of the National Party and prime minister through to the end of 2017, with Paula Bennett favoured to replace him, ahead of Judith Collins. The tax on capital gains announced last week appears to have had no short-term effect, with forecast Auckland house prices up again this week. The Official Cash Rate is now expected to be cut twice by the end of October, faster than last week’s forecast that the second cut would not occur until December. (STOP PRESS: AFTER THIS SNAPSHOT WAS TAKEN “BYELECTION IN PAKURANGA” LEAPT TO 99c BEFORE SETTLING BACK AROUND 50c)

New Zealand Politics:

• John Key is expected to remain National leader until the end of 2016 (82% probability, up from 78% last week) but has just a 48% probability of being National leader on Nomination Day (down from 50% last week). Mr Key has just a 15% probability of remaining National leader until the end of 2017 (up from 11% last week)

• Paula Bennett remains the favourite to become National Party leader if a vacancy arises (37%, down from 39% last week), followed by Judith Collins on 21% (up from 19%)

• Andrew Little is expected to remain Labour leader until at least the end of 2016 (66% probability, down from 80% last week) and has a 60% probability of being Labour leader on Nomination Day down from 83% last week). Mr Little has a 49% probability of remaining Labour leader until the end of 2017 (down from 66% last week)

• The race to be the next male co-leader of the Green Party is neck and neck with 50% probability for Kevin Hague (down from 60% last week) and 50% probability for James Shaw (up from 40%)

• Judith Collins has a 50% probability of being appointed to Cabinet this year (steady compared with last week) and a 65% probability of being appointed before the next election (up from 64%)

• Tim Groser is expected to be New Zealand’s next Ambassador to the United States (93% probability, steady compared with last week) and Maureen Pugh is expected to become eligible to be a list MP before the next election (95% probability, steady)

• Phil Goff is expected to stand for the Auckland mayoralty (86% probability, steady compared with last week) as is Maurice Williamson(71% probability, steady). Mr Williamson is however expected to remain MP for Pakuranga through to the next election (only 25% probability of a byelection, new stock) but not to stand in Pakuranga for National at the next election (only 31% he will, new stock)

• Next election expected in 2017 (94% probability, steady compared with last week) with a turnout of 75% (steady)

• Forecast party vote shares at next election:

o National 44.0% (steady compared with last week)

o Labour 33.8% (up from 33.5%)

o Greens 10.8% (steady)

o NZ First 7.9% (up from 7.6%)

o Others 3.5% (down from 4.0%)

• NZ First has an 83% probability of holding the balance of power after the next election (down from 84% last week). If NZ First does hold the balance of power, there is a 51% probability it will back Labour on confidence and supply (up from 37% last week) a 45% probability it will back National on confidence and supply (down from 60% last week), and a 2% probability it would sit on the crossbenches (steady)

• National prime minister expected after 2017 General Election (61% probability, up from 57% last week)

• David Carter is expected to be New Zealand’s next High Commissioner to the United Kingdom (83% probability, up from 82% last week) and Gerry Brownlee has an 85% probability of being the next New Zealand Speaker (steady)

New Zealand Business & Economics:

• Average Auckland house price expected to rise from $809,200 in April to:

o $815,356 in May (up from $814,337 last week)

o $822,540 in June (up from $818,475)

o $830,430 in July (up from $829,560)

• The average Auckland house price is expected to reach $1,000,000 in 2018 (62% probability)

• Quarterly GDP growth expected to be:

o 0.81% in the March quarter (up from 0.80% last week)

o 0.67% in the June quarter (down from 0.69%)

o 0.90% in the September quarter (down from 0.91%)

o 0.98% in the December quarter (steady)

• Annual growth expected to be 3.39% in the 2015 calendar year (down from 3.43% last week)

• Unemployment expected to be:

o 5.46% in the June quarter (steady compared with last week)

o 5.30% in the September quarter (steady)

o 5.37% in the December quarter (steady)

o 5.45% in the March quarter (up from 5.44%)

• New Zealand pay gaps in 2014/15 expected to be:

o Gender 9.95% (steady compared with last week)

o Maori 12.28% (steady)

o Pacific 23.12% (steady)

o Asian 20.43% (steady)

• Current account deficit expected to be:

o 3.61% of GDP in the March quarter (steady compared with last week)

o 3.57% in the June quarter (steady)

o 3.39% in the September quarter (steady)

o 3.49% in the December quarter (steady)

• Annual inflation expected to be:

o 0.39% to end of June 2015 quarter (steady compared with last week)

o 0.55% to end of September 2015 quarter (steady)

o 0.80% to end of December 2015 quarter (down from 0.82%)

o 1.56% to end of March 2016 quarter (steady)

o 1.47% to end of June 2016 quarter (steady)

• Official Cash Rate priced to be:

o 3.370% on 11 June (down from 3.372% last week)

o 3.225% on 23 July (down from 3.247%)

o 3.147% on 10 September (down from 3.174%)

o 3.101% on 29 October (down from 3.141%)

o 3.056% on 10 December (down from 3.096%)

o 3.046% on 28 January 2016 (down from 3.086%)

o 3.025% on 10 March 2016 (down from 3.065%)

o 3.015% on 28 April 2016 (down from 3.055%)

o 3.003% on 9 June 2016 (down from 3.043%)

• This implies the OCR is more likely than not to be cut on 11 June 2015 to 3.25% (steady compared with last week) and to be cut again on 29 October 2015 (compared with 10 December 2015 last week)

• Stocks on Australian interest rates are now available for trading

• 5% probability of a fiscal surplus in 2014/15 (up from 3% last week)

• Fiscal balance expected to be:

o -0.31% of GDP in 2014/15 (up from -0.32% last week)

o 0.31% of GDP in 2015/16 (down from 0.62%)

o 1.41% of GDP in 2016/17 (up from 1.31%)

o 1.96% of GDP in 2017/18 (up from 1.89%)

• Fonterra’s final payout (before retentions) expected to be:

o $4.72 in 2014/15 (steady compared with last week)

o $5.47 in 2015/16 (up from $5.46)

o $6.04 in 2016/17 (down from $6.18)

• Fruit-fly outbreak expected to be contained with fewer than 20 Queensland fruit-flies expected to be found in New Zealand as part of current outbreak (99% probability, up from 94% last week)

• New Zealand dollar not expected to reach parity with Australian dollar by the end of 2015 (only 12% probability it will achieve parity, down from 13% last week)

• Stocks on tourism arrivals are now available for trading

Foreign Affairs/Constitution:

• Andy Burnham is favourite to be the next leader of the UK Labour Party (56% probability, up from 40% last week), ahead of Liz Kendall (29% up from 21%)

• Boris Johnson has a 38% probability of being prime minister before 2020 (up from 37% last week)

• UK expected to vote to stay in EU by end of 2018 (75% probability, new stock)

• Socialist Workers’ Party expected to defeat People’s Party in next Spanish election (67% probability, steady compared with last week)

• All Eurozone countries, including Greece, expected to remain in Euro in 2015 (23% probability of an announcement of a departure this year, up from 18% last week). There is only a 38% probability of a departure by the end of 2017 (down from 40% last week)

• Tony Abbott is expected to be leader of the Australian Liberal Party on nomination day (65% probability, up from 60% last week) andBill Shorten is expected to be Labor leader (89% probability, steady)

• Liberals ahead of Labor for next Australian Federal election in 2016 (57% probability of Liberal win, up from 53% last week)

• Hillary Clinton is favoured to be the Democratic Party’s nominee for US president in 2016 and to be elected to that office (49% probability, down from 50% last week). Jeb Bush has a 35% probability of being the Republican nominee (down from 37% last week) followed by Marco Rubio (23%, down from 24%) and Scott Walker (20%, steady)

• There is only a 13% probability New Zealand will sign the Trans-Pacific Partnership this year (up from 12% last week), and the Trans-Pacific Partnership is not expected to be ratified by the US Congress before 1 July 2017 (only 43% probability it will be, up from 38% l

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