IPREDICT LTD
2014 Election Update #2
Wednesday 22 January 2014
Key Points:
•Growth to be 4.8% but unemployment to remain above 5.8%
•100 point rise in OCR expected
•Boscawen now expected to lead Act but its future on knife-edge
•Mana the safest of small parties and NZ First not expected back
•Key’s probability of third term up to 58%
•Conservative Party may be decisive
•Mallard and Dyson now expected to seek re-election
Commentary:
John Key’s odds of a third term have improved marginally this week, with a 58% probability there will be a National
prime minister after the election. However, with National and Labour/Green in a dead heat, Mr Key’s prospects of a
third term depend on small parties, particularly the Conservative Party. The election will take take place with
economic growth approaching 4.8% but with unemployment remaining above 5.8%. Among the small parties, Mana is in the
strongest position in terms of confidence it can win an electorate seat while Winston Peters’ NZ First continues not to
be expected back. Act is also vulnerable – John Boscawen is now favoured to lead the party, with David Seymour favoured
as its Epsom candidate, but it has only a 50% chance of winning the pivotal seat.
Economic Context
As reported last week, growth is expected to be strong during the year. iPredict’s first quarterly projections are that
growth will have been 1.01% in the December 2013 quarter, and will be 1.18% in the March 2014 quarter, 1.19% in the June
quarter, 1.16% in the September quarter, and 1.21% in the December quarter. Annual growth in the 2014 calendar year is
forecast to be 4.8%.
Falls in unemployment are expected to be more modest. Unemployment is expected to have been below 6.03% in theDecember 2014 quarter and to fall to 5.92% in theMarch 2014 quarter, 5.88% in theJune quarter, 5.85% in theSeptember quarter and 5.83% in theDecember quarter.
The annual current account deficit is expected to have been 3.6% of GDP in theDecember 2013 quarter and to be 3.5% in theMarch 2014 quarter, 3.6% in theJune quarter, 4.0% in theSeptember quarter and 3.9% in theDecember quarter.
There is now an 85.8% probability there will be afiscal surplus in 2014/15. The fiscal surplus is expected to be 0.56% of GDP in2014/15 and rise to 0.83% of GDP in2015/16. Stocks forecasting the 2016/17 fiscal surplus will be launched today.
Annual inflation is expected to remain around the Reserve Bank’s 2% target midpoint through 2014 and within the 1-3%
band. Annual inflation to the end of theMarch quarter is expected to be 1.62%, rising to 1.91% in theJune quarter, 2.02% in theSeptember quarter and 2.11% in theDecember quarter.
The inflation forecasts need to be seen in the context of rising interest rates. There is a 98.9% probability the
Reserve Bank willraise the Official Cash Rate (OCR) in 2014. Despite higher-than-expected December 2013 inflation data, there is still a 67.6% probability the OCR
will not be changed on30 January but a 70.4% probability it will be raised by 25 basis points on13 March. A further 25 point rise is expected in eitherApril orJune and by30 October the OCR is forecast to be 100 basis points higher than it is now.
There is an 89.9% probability the Reserve Bank’s restrictions onhigh loan-to-value ratio mortgages will stay in place through 2014.
Election Date & Personnel
There continues to be an 80% probability the election will be held in thefourth quarter of 2014, and a 62% probability it will be held inNovember, up from 55% a week ago. All current party leaders, except for retiring Act leader John Banks and retiring Maori Party
co-leader Tariana Turia are overwhelmingly expected toremain in their roles until nomination day.
There has been a change in forecast for theleadership of the Act Party. John Boscawen now has a 55% probability of becoming leader ahead of Jamie Whyte on 45%. There is less clarity on whoAct’s Epsom candidate will be, with David Seymour favoured but with only 45% probability.
In the highly unlikely event there were a change in leader of either the National or Labour parties,Judith CollinsandGrant Robertson are favourites to take the role in their party, with 37% and 47% probability respectively. Contrary to market prices
last week, Labour’s Ruth Dyson and Trevor Mallard are nowboth expected to seek re-election. The probabilityMurray McCully will retire has eased back from 47% last week to 43% this week.
Party Vote
There have been only small changes in forecast party vote shares over the last week. Of themajor parties, National is expected to win 42.96% of the party vote, Labour 34.07% and the Green Party 9.29%.
Noother parties are expected to reach the 5% threshold under the MMP electoral system. TheConservative Party is expected to win 4.53%,NZ First 4.33%,Act 1.87%, theMaori Party 1.38%,Mana 0.69,UnitedFuture 0.59% and theAotearoa Legalise Cannabis Party 0.30%. Stocks for the proposed Civilian and Kim Dotcom parties will be launched in the near future.
Electorate Contests
Contract bundles for every electorate will be launched progressively through the year. Of the small parties,ManaandUnitedFuture are most likely to win a seat, each having an 80.2% probability of winning at least one seat, followed by theConservatives on 64.6% probability and theMaori Party on 61.5%.Act has just a 50% probability of winning an electorate seat.
In terms of expected electorate MP representation, only Mana has a value above one, being expected to have 1.05
electorate MPs. The Maori Party has expected electorate representation of 0.85 MPs, UnitedFuture 0.84 MPs, the
Conservatives 0.65 MPs and Act 0.59 MPs.
Election Result & Alternative Scenarios
Based on the party vote forecasts and the electorate results above (including an assumption that Act were to win one
electorate seat) Parliament would be as follows: National 54 MPs, Labour 42 MPs, the Greens 12 MPs, the Conservatives 6
MPs, Act 2 MPs, the Maori Party 2 MPs, UnitedFuture 1 MP and Mana 1 MP, for a total of 120 MPs. A government would be
required to have the support of 61 MPs on confidence and supply.
Under this scenario, both National and Labour/Green would have 54 MPs and would require the support of other parties to
form a government.
The current National/Maori Party/Act/UnitedFuture governing arrangement would have only 59 MPs and could not form a new
government. However, National could form a government with the Conservative Party and one or more of the Maori Party,
Act and UnitedFuture parties.
A government comprising Labour, the Greens and the Conservative Party, and one of UnitedFuture or Mana, would also be a
theoretical possibility with 61 MPs.
Because of the political vulnerability of the Act Party, iPredict has also calculated what would happen were the party
not to win an electorate seat. Under this scenario, Parliament would be as follows: National 55 MPs, Labour 43 MPs, the
Greens 12 MPs, the Conservatives 6 MPs, the Maori Party 2 MPs, and Mana and UnitedFuture 1 MP each. National and
Labour/Green would again be tied, this time on 55 MPs, each with minor parties deciding the government. National and
the Conservative Party could govern with the support of UnitedFuture, as could a Labour/Green/Conservative arrangement
with or without the UnitedFuture or Mana parties.
iPredict has also examined what would happen were the next two most vulnerable minor parties, the Conservatives and the
Maori Party, to miss out on electorate seats. Under this scenario, Parliament would be as follows: National 59 MPs,
Labour 46 MPs, the Greens 13 MPs, and UnitedFuture and Mana 1 MP each. With prime minister John Key having ruled out
working with the Labour, Green or Mana parties, National could not govern but nor could Labour/Green/Mana. Only a
Labour/Green/Mana/UnitedFuture arrangement would be possible to avoid new elections.
Overall, the market indicates that National has this week marginally improved itsvery narrow advantage over Labour to lead the next government. There is now a 58.3% probability of a National prime minister after the next
election (up from 53.3% last week) and a 41.7% probability of a Labour prime minister (down from 45.1%).
Miscellaneous
iPredict Ltd is owned by Victoria University of Wellington. Details on the company and its stocks can be found atwww.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 10.37 am today.
ENDS