IPREDICT LTD
2011 ELECTION UPDATE #41
1 September 2011
www.ipredict.co.nz

Key Points:
* Twelve weeks before election, National forecast to govern alone
* Greens support increases further
* National strengthens hold on several marginal electorates
* Shane Jones still ahead in Tamaki-Makaurau
* Fonterra's final 2010/11 payout forecast to be $8.15/kgMS
* Economic indicators remain steady

Commentary:

Twelve weeks out from the general election, John Key's National Party is forecast to govern alone, according to this week's snapshot from New Zealand's prediction market, iPredict. National is now expected to hold 61 seats in a 120 seat Parliament and has strengthened its hold on several marginal electorates including Auckland Central, Maungakiekie, New Plymouth, Otaki and Tamaki. For the third successive week, support for the Green Party has increased and it is now forecast to hold 11 seats after the election, up from 10 last week. In economics, Fonterra's final payout per kilogram of milk solids for the 2010/11 financial year (before retentions) is expected to be $8.15. Key economic indicators (GDP, unemployment, inflation and OCR) have remained broadly unchanged.

Economic Context

Expectations for GDP growth have improved this week. Growth over the next four quarters is expected to be 0.8% for the June quarter (up from 0.7% last week), 0.6% for the September quarter (steady), 0.6% for the December quarter (from 0.5% last week) and 0.6% for the March 2012 quarter (steady). Forecast unemployment has remained steady and is expected to be 6.4% in the September quarter, 6.2% in the December quarter and 6.2% in the March 2012 quarter.

Inflation expectations have remained steady. Annual inflation is expected to be 5.0% in the September quarter, 2.8% in the December quarter and 2.6% in the March 2012 quarter.

The market continues to indicate strongly that petrol prices will be capped at a maximum price of $2.30 this year, with just an 18% probability that unleaded petrol will exceed $2.30 per litre in 2011. The market is also indicating that the probability fuel prices will drop below $1.90 per litre in 2011 is 17%.

Fonterra's final payout for the 2010/11 financial year is predicted to be $8.15 per kilogram of milk solids before retentions (up from $8.14 last week). The payout in 2011/12 is expected to be $7.50. Both these numbers are ahead of Fonterra's official forecasts.

Market expectations of OCR movements have remained steady this week. The market indicates that Reserve Bank Governor Alan Bollard will hold off an increase in the OCR until December, when it will rise to 2.75%, and then again in March 2012 to 3.00%, and in April to 3.25%.

The expected 90-day bank bill rate for 1 September 2011 is 2.90% (down from 2.93% last week) and for 1 December 2011 is steady at 3.09% (up from 3.08% last week).

Expectations for average floating-rate mortgages have remained steady this week, with a 72% probability that the average floating rate will reach 6.00% by the end of the year (up from 66%), but just an 11% probability that they will reach 6.50% in 2011 (unchanged).

The market's expectations for the Current Account deficit have moved this week, with the market indicating the deficit will be 5.21% of GDP for the year to June (up from 4.82% last week), 4.68% of GDP for the year to September (down from 4.69% last week), and 4.15% of GDP for the year to December (down from 4.24% last week).

Parties & Personnel

All current leaders of parliamentary parties have at least an 85% probability of remaining in their positions until the election. The most vulnerable is Labour Party leader Phil Goff, with the market forecasting a 15% probability he will be replaced prior to the election (up from 9% last week). There is a 34% probability (down from 35% last week) that there will be changes to the top ten of Labour's party list, announced on 10 April 2011, when it is registered with the Electoral Commission.

Key Electorate Contests

Act has remained steady in Epsom this week, with an 89% probability that the seat will be won by a candidate other than a National candidate or incumbent Act MP Rodney Hide.

In Ohariu, support for United Future's Peter Dunne has slipped back this week, although he retains a 73% probability of being re-elected (down from 77% last week).

New Zealand First is now well below MMP's 5% threshold, with a forecast 4.1% vote share (down from 4.7% last week). Party leader Winston Peters has just a 23% probability of returning to Parliament (steady).

Expectations that Mana Party leader Hone Harawira will retain the Te Tai Tokerau seat in the General Election have decreased slightly to 85% (from 86% last week).

In Tamaki-Makaurau, Labour's Shane Jones retains the support of the market. Mr Jones has a 52% probability of being elected (down from 55% last week), still ahead of Maori Party Co-Leader Dr Pita Sharples who has a 45% chance of being re-elected (up from 42% last week).

Maori Party co-Leader Tariana Turia is still expected to retain Te Tai Hauauru (90%, up from 82% last week), and Te Ururoa Flavell is expected to retain Waiariki (79%, up from 73% last week).

For the Labour Party, Nanaia Mahuta is expected to retain Hauraki-Waikato (85%, up from 79% last week) and Labour's position in Ikaroa-Rawhiti (currently Parekura Horomira's seat) has improved slightly (79%, up from 76% last week).

Te Tai Tonga remains forecast to change hands, with a 74% probability it will be won by Labour's Rino Tirikatene from the Maori Party's Rahui Katene (down from 76% last week).

In marginal electorates other than those mentioned above, the probability National's Jonathan Young will retain New Plymouth has increased to 72% from 66% last week. There is a 79% probability that National's Nikki Kaye will retain Auckland Central (up from 74% last week), a 76% likelihood National's Paula Bennett will retain her Waitakere seat (up from 73% last week), and National has also strengthened its hold on Maungakiekie (90%, up from 84%), Otaki (88%, up from 82%), and Tamaki (96%, up from 90%). In the Te Atatu electorate, Labour's Phil Twyford has a 73% likelihood of winning the seat (up from 72% last week), Damien O'Connor is expected to win back West Coast-Tasman for Labour (53%, steady), while support for Iain Lees-Galloway has slipped to 70% (down from 79% last week).

On a seat-by-seat basis, National is expected to win 40 electorate seats, Labour 25, the Maori Party 2, and Act, United Future and the Mana Party 1 seat each.

Party Vote, Election Result and Alternative Scenarios

Forecast party vote shares are now: National 48.0% (up from 45.0% last week), Labour 29.7% (down from 32.7% last week), the Greens 9.0% (up from 7.6% last week), Act 4.2% (down from 4.9% last week), New Zealand First 4.1% (down from 4.7% last week), UnitedFuture 1.7% (up from 1.5% last week), the Maori Party 1.5% (down from 1.7% last week), the Mana Party 1.3% (steady), the Conservative Party 0.9% (steady), the New Citizen Party 0.4% (steady), and the proposed Reform New Zealand Party 0.1% (steady).

Based on this data, and the electorate results above, Parliament would be as follows: National 61 MPs, Labour 37 MPs, the Greens 11 MPs, Act 5 MPs, and the Maori Party, UnitedFuture and the Mana Party 2 MPs each. There would be 120 MPs, requiring a government to have the support of 61 MPs on confidence and supply, meaning John Key's National Party could govern alone.

Overall the market indicates a 93% probability there will be a National Prime Minister after the election (up from 92% last week).

MMP Referendum and Miscellaneous

The probability New Zealanders will elect to retain the MMP voting system in the referendum to be held on Election Day remains steady at 83%.

iPredict is owned by Victoria University of Wellington. Details on the company and its stocks can be found at www.ipredict.co.nz The company is providing full election coverage this year, with contract bundles for the party vote and for every electorate race in the country now available for trading, along with other contract bundles on a wide range of economic, political and social issues. The weekly political snapshot is taken at a random time each week to avoid market manipulation by political parties or activists. This week's was taken at 8:37am today.

ENDS

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