IPREDICT LTD
2014 ELECTION UPDATE #3
Wednesday 29 January 2014
Key Points:
•State of Nation speeches deliver small gains to National and Greens at expense of Labour
•Whyte now favoured to lead Act, improving its prospects
•Economic forecasts remain stable with small drop in forecast surpluses
•1% interest rate rise by October
•September election now expected, with 77% turnout
•Act, the Conservatives, Mana, the Maori Party and UnitedFuture to win one electorate seat each
•Key touching 60% probability of re-election
•Stocks for Epsom, Ohariu, East Coast Bays, Upper Harbour and Maori electorates to be launched today
Commentary:
An election is now expected in September before interest rates rise by a full percentage point and as State of the
Nation speeches by prime minister John Key and Green Party co-leader Metiria Turei appear to have given their parties a
small boost at the expense of Labour, whose forecast party vote has fallen nearly 1% since last week. Following a
change in expectation in favour of Jamie Whtye and David Seymour to become leader and Epsom candidate for Act, the party
appears to have significantly improved its prospects of winning an electorate seat along with Mana, UnitedFuture, the
Maori Party and the Conservatives. On current numbers, re-election to parliament of NZ First would not provide enough
support for a feasible Labour-led government and the probability of a National prime minister after the election is
approaching 60%.
Economic Context
Growth expectations have remained broadly stable over the last week. The market expects that growth will have been
1.00% in theDecember 2013 quarter, and will be 1.18% in theMarch 2014 quarter, 1.19% in theJune quarter, 1.16% in theSeptember quarter, and 1.21% in theDecember quarter. Annual growth in the 2014 calendar year is forecast to be 4.82%.
Expectations for the unemployment rate are also broadly stable. Unemployment is expected to have been 6.01% in theDecember 2013 quarter and to fall to 5.91% in theMarch 2014 quarter, 5.88% in theJune quarter, 5.85% in theSeptember quarter and 5.83% in theDecember quarter.
Current account deficit expectations are 3.49% of GDP for theDecember 2013 quarter, 3.50% in theMarch 2014 quarter, 3.60% in theJune quarter, 4.01% in theSeptember quarter and 4.00% in theDecember quarter.
Expectations for afiscal surplus in 2014/15 have eased slightly, from 85.8% probability last week to 77.8% this week. The fiscal surplus is expected to be 0.52%
of GDP in2014/15 (down from the 0.56% of GDP expected last week) and to rise to 0.82% of GDP in2015/16 (down from 0.83% last week). Stocks forecasting the2016/17 fiscal surplus have been launched but have not yet been traded.
Inflationary expectations for the year are also stable with annual inflation expected to remain around the Reserve
Bank’s 2% target midpoint 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 market continues to indicate a 98.9% probability the Reserve Bank willraise the Official Cash Rate (OCR) in 2014. However, expectations of an increasetomorrow have fallen further, with a 75% probability there will be no change compared with 67.6% last week. Expectations of a
25-point rise on13 March have increased from 70.4% last week to 81.3% this week. A further 25-point rise is expected in eitherApril orJune. By30 October, the OCR is forecast to be 100 basis points higher than it is now.
There is a 90% probability the Reserve Bank’s restrictions onhigh loan-to-value ratio mortgages will stay in place through 2014.
Election Date & Personnel
An early election is now expected, with September replacing November as the most likelymonth. There is now a 55% probability the election will be held in September (up from 18% last week), a 29% probability it
will be held in October (up from 13% last week) and only an 18% probability it will be held in November (down from 62%
last week).
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.
Expectations for theleadership of the Act Party have again seesawed with the Jamie Whyte/David Seymour ticket now strongly favoured over John Boscawen. Dr Whyte has
an 83% probability of being elected leader this Sunday and Mr Seymour has a 70% probability of being the party’sEpsom candidate.
In the highly unlikely event there were a change in leader of either the National or Labour parties,Judith Collins andGrant Robertson are favourites to take the role in their party, with probability of 42% (up from 37%) and 47% (stable) 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 continues to ease, from 47% two weeks ago, to 43% last week and 40% this week.
Party Vote
Theparty vote turnout is expected to be 77.2% compared with 74.2% in 2011.
There have been small changes in forecast party vote shares over the last week. Of themajor parties, National is expected to win 43.06% of the party vote (up from 42.96% last week), Labour 33.17% (down from 34.07%) and
the Green Party 9.59% (up from 9.29%).
Noother parties are expected to reach the 5% threshold under the MMP electoral system. TheConservative Party is expected to win 4.40%,NZ First 4.40%,Act 1.70%, theMaori Party 1.30%,Mana 0.60%,UnitedFuture 0.60% theAotearoa Legalise Cannabis Party 0.40% and all others 0.80%. Stocks for the Liberatarianz, Democrats for Social Credit, Internet and Civilian parties
will be launched today.
Electorate Contests
Contract bundles for every electorate will be launched progressively through the year, starting with Epsom, Ohariu, East
Coast Bays, Upper Harbour and the Maori electorates today. Of the small parties,Mana andUnitedFuturecontinue to be most likely to win a seat, although the probability they will do so has eased from 80.2% probability each
last week to 73.1% and 71.8% respectively this week.
Act’s probability of winning an electorate seat has improved from just 50% last week to 71.8% this week. After it appeared
to distance itself from National at Ratana, theMaori Party’s prospects of winning at least one seat have also improved from 61.5% last week to 67.5% this week. TheConservatives are also favoured to win a seat with 61.5% probability, down from 64.6% last week.
In terms of expected electorate MP representation, UnitedFuture is now expected to have 1.23 electorate MPs (up from
0.65 last week), Mana 1.02 MPs (down from 1.05), the Maori Party 0.99 MPs (up from 0.85), Act 0.74 MPs (up from 0.59)
and the Conservatives 0.63 MPs (down from 0.65).
Election Result & Alternative Scenarios
Based on the party vote forecasts and the electorate results above, 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 (all steady compared with last week), 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 speculation about the role NZ First could play after an election, iPredict has calculated what would happen
were that party to reach the 5% threshold. Assuming it won exactly 5% at the expense of “all others”, Parliament would
be as follows: National 52 MPs, Labour 40 MPs, the Greens 11 MPs, NZ First 6 MPs, the Conservatives 5 MPs, Act and the
Maori Party 2 MPs each, and Mana and UnitedFuture 1 MP each.
Under this scenario, a National/Conservative/Act/UnitedFuture/Maori Party government could be formed with 62 MPs. A
National/NZ First/Conservative combination could also be formed with 63 MPs.
A Labour/Green/NZ First/Maori Party/Mana combination would have only 60 MPs and would need the support of one other
party such as UnitedFuture or the Conservatives.
Overall, the market indicates another gain this week to National, which has increased itsprobability of leading the next government to 59.9%, up from 58.3% last week and 53.3% two weeks ago. There is a 40.1% probability of a Labour prime minister,
down from 41.7% last week and 45.1% the week before.
Labour is the early favourite to win the2017 election.
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 8.00 am today.
ENDS