IPREDICT LTD

2014 ELECTION UPDATE #27

Wednesday 23 July 2014

www.ipredict.co.nz

Key Points:

• Inflation and interest rate expectations fall ahead of OCR announcement tomorrow

• Forecast fiscal surplus again falls sharply, and growth marginally down

• Greens fall and Internet-Mana strengthens, as Sykes gets closer in Waiariki

• No feasible Labour-led government, even with Greens, NZ First, Internet-Mana and Maori Party

• National/NZ First government only viable option, unless Maori Party or Conservatives win electorate seat

• Parker re-emerges as Labour leadership contender

• Palmerston North a dead heat

Commentary:

A sharp fall in the Green Party’s forecast party vote means there is no longer any feasible Labour-led government, according to this week’s snapshot of the combined wisdom of the 7000 registered traders on New Zealand’s online prediction market, iPredict. The Greens’ fall has been to Labour’s gain, but also Internet-Mana whose forecast party vote is up, as are Annette Sykes’ chances of winning Waiariki. The only viable government under iPredict’s current prices would be a National/NZ First arrangement, but other National-led options would open up if the Maori or Conservative parties won an electorate. Expectations for growth, the fiscal surplus, inflation and interest rates are all down. Palmerston North is neck and neck.

Economic Context

Growth expectations have slipped marginally this week. Growth in the June quarter is now expected to be 0.9% (down from 1.0% last week), 1.0% in the September quarter (steady) and 1.1% in the December quarter (steady). Forecast annual growth for 2014 has slipped marginally to 4.1%, from 4.2% last week.

Stocks forecasting growth in the March 2015, June 2015, September 2015 and December 2015 quarters are now open for trading, but have not yet attracted sufficient volumes to make robust forecasts.

Unemployment expectations are again 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 the current account deficit have improved marginally this week. The forecast deficit for the June quarter is now 2.9% of GDP (down from 3.0% last week), 3.7% in the September quarter (steady) and 4.0% in the December quarter (steady).

The probability of a fiscal surplus in 2014/15 has fallen sharply again this week, and is now just 64%, down from 76% last week, 84% the week before and 86% three weeks ago. The surplus forecast for 2014/15 is now just 0.31% of GDP, down from 0.37% last week, 0.42% two weeks ago and 0.43% three weeks ago. The forecast for the 2015/16 surplus is steady at 1.0% of GDP, as is the forecast surplus for 2016/17 at 2.0% of GDP. The opening forecast for the 2017/18 surplus is 2.4% of GDP.

Inflationary expectations have fallen this week, after Statistics New Zealand reported annual inflation was 1.6% in the year ended June, compared with iPredict’s forecast last week of 1.8%. Inflation continues to be forecast to remain below the Reserve Bank’s 2% target midpoint through 2014. Annual inflation to the end of the September quarter is expected to be 1.5% (down from 1.7% last week), and 1.7% in the December quarter (down from 1.8%).

Stocks forecasting inflation in the March 2015, June 2015, September 2015 and December 2015 quarters are now open for trading, but have not yet attracted sufficient volumes to make robust forecasts.

Interest rate expectations have also fallen this week. The market is forecasting a 75% probability that the Reserve Bank will increase the Official Cash Rate by a further 25 basis points at its next review tomorrow (down from 85% last week). Compared with the rate of 2.5% at the start of 2014, the market is pricing that the OCR will be up 94 basis points in July (down from 96 last week), 97 in September (down from 104), 105 in October(down from 115), 115 in December (down from 125), 120 in January 2015 (down from 130), 135 in March 2015 (down from 146), 144 in April 2015(new stocks) and 160 in June 2015 (new stocks).

Foreign Affairs & Trade

New Zealand’s chances of being elected to the UN Security Council for 2015-16 have slipped again to 30% (down from 43% last week). The probability Helen Clark will be appointed the next UN Secretary General is up to 29% from 14% last week. The probability New Zealand will sign aFree Trade Agreement with South Korea before 1 December 2014 is down to 16%, from 22% last week and from 26% the week before. The probability the US Congress will ratify the yet-to-be-signed Trans Pacific Partnership (TPP) agreement before 1 July 2015 is steady at 11%, but the probability of ratification by 1 July 2017 is down to 29%, from 35% last week. There is a 5% probability that Secretary of Foreign Affairs John Allen will depart from his role before September 2014 (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 95% probability. The party vote turnout is now expected to be 74.1% (down from 74.7% last week).

Of major parties, National is expected to win 45.3% of the party vote (up from 43.5% last week). Labour is also up, to 29.8% from 28.5% last week, but the Green Party is back down to 10.8%, from 12.8% last week.

Of smaller parties, NZ First’s expected party vote is down to 5.1%, from 5.6% last week. The Conservative Party has fallen again, to 3.6% (compared with 3.9% last week and 4.0% the week before). Act is down to 1.8% (from 2.0% last week) while UnitedFuture is down to to 0.4% (from 0.5% last week). Amongst other smaller parties, the Internet Mana alliance is back up to 2.2% (from 1.9% last week), the Maori Party is on 0.9% (steady), and the Aotearoa Legalise Cannabis Party is down to 0.2% (from 0.3% last week).

Electorate Contests

Act’s probability of winning at least one electorate seat is up to 84% (from 82% last week), and its expected electorate representation is back to 0.9 MPs, from 0.8 MPs last week. The market prices that its candidate David Seymour has an 85% probability of winning Epsom (up from 80% last week).

The Conservative Party’s probability of winning at least one seat remains 35% (steady compared with last week), and its expected electorate representation is also steady on 0.4 MPs. The Conservatives are not expected to win any specific electorate and leader Colin Craig has just a 33% probability of winning in East Coast Bays against Murray McCully (steady compared with last week).

UnitedFuture has strengthened this week and now has an 83% probability of winning at least one seat (up from 79% last week) and its expected electorate MP representation is 0.8 MPs (steady). Its probability of winning Peter Dunne’s Ohariu electorate is 82% (up from 80% last week).

In the Maori electorates, Mana has an 83% probability of winning at least one seat (down from 85% last week) but its expected electorate representation is steady on 1.2 electorate MPs. The Maori Party has again recovered marginally but it remains in trouble. It now has a 48% probability of winning an electorate (up from 45% last week) and its expected electorate representation is up to 0.7 MPs, from 0.6 MPs last week.

The probability Mana leader Hone Harawira will win Te Tai Tokerau has slipped marginally to 82% (from 83% last week) but its candidate inWaiariki, Annette Sykes, is up to 43% probability (from 40% last week and 25% the week before). However, Maori Party Leader Te Ururoa Flavell is also up to 48% probability of winning the seat, from 43% last week. Labour is overwhelmingly favoured to win Te Tai Hauauru and has a 65% probability of winning Tamaki-Makaurau

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

The three most marginal seats, excluding those mentioned above, are Palmerston North, Port Hills and Waimakariri.

In Palmerston North, National’s Jono Naylor and Labour’s Ian Lees-Galloway are neck and neck, on 50% probability each.

In Port Hills, Labour’s Ruth Dyson has strengthened and now has a 59% probability of retaining her seat (up from 55% last week) from National’s challenger, Nuk Korako.

In Waimakariri, National’s Matthew Doocey is moving ahead and now has a 62% probability of beating Labour’s Clayton Cosgrove (up from 55% last week).

Election Result & Alternative Scenarios

Based on the party-vote and electorate forecasts above, Parliament would consist of: National 57 MPs (up from 55 last week), Labour 37 MPs (up from 36), the Greens 14 MPs (down from 16), NZ First 6 MPs (down from 7), Act 2 MPs (down from 3), Internet-Mana 3 MPs (up from 2) and UnitedFuture 1 MP (steady). Assuming the Maori Party did not win Waiariki, it would have no MPs (steady). 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 and UnitedFuture would have only 60 seats and could not govern. National could govern with the support of NZ First with whom it would hold 63 seats. The Greens’ fall means Labour would not be able to form a government even with all of the Greens, Internet-Mana and NZ First, with just a combined 60 seats.

Were the Maori Party to win Waiariki but the Conservative Party to miss out on East Coast Bays, Parliament would be the same except that the Greens would have only 13 MPs and the Maori Party 1 MP. This means a National/Act/UnitedFuture/Maori Party government could be formed, with 61 MPs, or a National/NZ First government with 63 MPs.

Given speculation National may negotiate with the Conservative Party over an electorate accommodation, iPredict has also projected a scenario based on the market’s party vote and electorate forecasts, but with the addition of the Conservative Party and Maori Party both winning electorates. Under that scenario, Parliament would consist of: National 55 MPs, Labour 36 MPs, Greens 13 MPs, NZ First 6 MPs, Conservatives 4 MPs, Act 2 MPs, Internet-Mana 3 MPs, UnitedFuture 1 MP and the Maori Party 1 MP. Parliament would have 121 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 both the Conservative and Act parties or with NZ FIrst.

Given the possible importance of NZ First, iPredict has a bundle of stocks forecasting NZ First’s decision-making should it hold the balance of power. This indicates a very tight situation. There is a 49% probability Mr Peters would support a National-led government (down from 50% last week) and a 2% probability he would give confidence and supply to neither National nor Labour (steady) which would favour the larger bloc, which the market indicates would be National-led. There is a 47% probability Mr Peters would support a Labour-led Government (steady)

Overall, National now has an 80% probability of leading the next government, up from 78% last week.

Post Election Developments

David Cunliffe’s position as Labour leader remains bleak. There is now a 52% probability he will depart as leader by the end of 2014 (up from 51% last week), an 88% probability he will depart by the end of 2015 (steady), a 92% probability he will depart by the end of 2016 (steady) and a 99% probability he will depart by the end of 2017 (steady).

Grant Robertson continues to be strongly favoured to succeed Mr Cunliffe as next Labour leader, but is down to 65% probability from 70% last week. David Parker has returned to second-place on 19% probability (up from 5% last week), followed by Jacinda Ardern on 8% (down from 9%).

In National, John Key’s position continues to strengthen. He now has a 38% probability of departing as leader by the end of 2015 (down from 41% last week), a 59% probability of departing by the end of 2016 (down from 62%), and an 80% probability he will depart by the end of 2017 (down from 81%).

Steven Joyce remains favoured to succeed Mr Key as National Party leader, with 45% probability (steady compared with last week), followed by Judith Collins on 17% probability (steady), followed by Simon Bridges, Paula Bennett and Bill English, all on 7%.

Labour’s chances of winning the 2017 election remain 52% (steady compared with last week).

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 11.09 am today.

ENDS

© Scoop Media