IPREDICT LTD

2014 ELECTION UPDATE #29

Monday 28 July 2014

www.ipredict.co.nz

Key Points:

• 2014/15 fiscal surplus evaporates, with 66% chance of a deficit

• Inflation and interest-rate expectations ease marginally

• Labour & Greens lose ground to National, NZ First, Conservatives and Internet-Mana

• Conservatives’ hopes of a seat down to 8%

• Maori Party picked to leave parliament

• Port Hills swings to National, Palmerston North too close to call and Waimakariri extremely tight

• NZ First to hold balance of power and expected to back National

• Cunliffe’s position strengthens while Robertson and Joyce weaken

• National marginally ahead for 2017

Commentary:

For the first time, the 7000 registered traders on New Zealand’s online predictions market, iPredict, are picking that the country will fail to achieve a fiscal surplus in 2014/15 but most other economic forecasts are broadly steady. In politics, National Party leader John Key’s decision not to reach an electoral accommodation with the Conservative Party appears to have dashed any chance it had of entering parliament in 2014, and the Maori Party is again picked as likely to leave Parliament. NZ First is expected to hold the balance of power and back a National-led government. Following a controversial debate between Steven Joyce and Grant Robertson on TV3’s The Nation, both have lost ground in the contest to become the next leader of National and Labour respectively, although both remain favoured. David Cunliffe’s probability of remaining Labour leader after the election has improved marginally, as have National’s chances of winning a fourth term in 2017.

Economic Context

Growth expectations are steady this week. Growth in the June quarter is now expected to be 0.9% (steady compared with last week), 1.0% in the September quarter (steady) and 1.2% in the December quarter (steady). Forecast annual growth for 2014 is steady on 4.1%.

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 also 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 are also steady this week. The forecast deficit for the June quarter is 2.8% of GDP (steady compared with last week), 3.7% in the September quarter (steady) and 3.9% in the December quarter(steady).

A fiscal deficit in 2014/15 is expected for the first time. The probability of a fiscal surplus in 2014/15 has continued its dramatic fall this week, and is now just 34%, down from 50% last week, 64% two weeks ago, 76% three weeks ago, 84% four weeks ago and 86% five weeks ago. The surplus forecast for 2014/15 is now just 0.06% of GDP, down from 0.22% last week, 0.31% two weeks ago, 0.37% three weeks ago, 0.42% four weeks ago and 0.43% five weeks ago. Future surplus forecasts are steady at 1.0% of GDP in 2015/16, 2.0% for 2016/17 and 2.4% for 2017/18.

Short-term inflationary expectations have eased marginally this week and remain below the Reserve Bank’s 2% target midpoint through 2014. Annual inflation to the end of the September quarter is expected to be 1.6% (steady compared with 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 again eased marginally this week. Compared with the rate of 2.5% at the start of 2014, the market is pricing that the OCR will be up 101 basis points in September (up from 100 last week), 104 in October(steady), 110 in December (down from 111), 115 in January 2015 (down from 117), 132 in March 2015 (down from 133), 140 in April 2015 (down from 142) and 156 in June 2015 (down from 158).

Party Vote

All current party leaders, including Maori Party co-leader Tariana Turia, are expected to remain in their roles until nomination day with at least 87% probability. The party vote turnout is expected to be 74.4% (up from 74.1% last week).

Of major parties, National is expected to win 44.6% of the party vote (up from 44.2% last week), Labour is expected to win 28.6% (down from 29.6%), and the Green Party is expected to win 10.3% (down from 10.7%).

Of smaller parties, NZ First’s expected party vote is 5.8% (up from 5.7% last week), the Conservative Party is on 4.2% (up from 3.7%), Internet Mana is on 3.4% (up from 2.8%), Act is on 1.8% (down from 1.9%), the Maori Party is on 0.7% (down from 0.8%), UnitedFuture is on 0.2% (steady), and the Aotearoa Legalise Cannabis Party is on 0.2% (steady).

Electorate Contests

In electorate contests, Mana has an 87% probability of winning at least one seat (up from 86% last week) but its expected electorate representation is down to 1.1 MPs (from 1.2 MPs last week). The probability Mana leader Hone Harawira will win Te Tai Tokerau is 85% (steady compared with last week) but its candidate in Waiariki, Annette Sykes, is down to 27% (from 43% last week).

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

UnitedFuture has an 86% probability of winning at least one seat (up from 85% last week) and its expected electorate MP representation is 0.9 MPs (up from 0.8 MPs last week). Its probability of winning Peter Dunne’s Ohariu electorate is 86% (up from 83% last week).

After a couple of weeks of upward movement, the Maori Party is again set to leave parliament. It now has a 48% probability of winning an electorate (down from 51% last week) and its expected electorate representation is down to 0.6 MPs (from 0.7 MPs last week). The probability co-leader Te Ururoa Flavell will win Waiariki is now 45% (down from 50% last week).

Following National Party leader John Key’s announcement his party will not reach an accommodation with the Conservative Party in East Coast Bays, Colin Craig’s vehicle appears out for the count. It now has just an 8% probability of winning an electorate seat (down from 35% last week), and its expected electorate representation is now just 0.06 MPs (down from 0.4 MPs last week).

The market prices that Mr Craig has just a 7% probability of winning in East Coast Bays against Murray McCully (down from 33% last week) while Christine Rankin has just a 4% probability of winning Epsom over Act’s David Seymour and National’s Paul Goldsmith.

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

The six most marginal seats, excluding those mentioned above, are Palmerston North, Port Hills, Waimakariri, Christchurch Central, Hutt South and West Coast-Tasman.

In Palmerston North, National’s Jono Naylor last week had an edge over Labour incumbent Ian Lees-Galloway, with a 55% probability of winning the seat, but this week the two are again in a dead heat, at 50% probability each.

In Port Hills the forecast winner has changed. National’s challenger, Nuk Korako now has a 53% probability of defeating Labour incumbent Ruth Dyson, who was favoured on 59% last week.

In Waimakariri, National’s Matthew Doocey now has just a 53% probability of holding out Labour’s Clayton Cosgrove (down from 62% last week).

In Christchurch Central, Labour’s Tony Milne has just a 67% chance of defeating National incumbent Nicky Wagner (down from 79% last week).

In Hutt South, Labour incumbent Trevor Mallard now has a just 69% probability of holding out against National’s Chris Bishop (down from 85% last week).

In West Coast-Tasman, Labour incumbent Damien O’Connor has a 69% chance of holding out against National’s Maureen Pugh (steady).

Election Result & Alternative Scenarios

Based on the party-vote and electorate forecasts above, Parliament would consist of: National 57 MPs (up from 56 last week), Labour 37 MPs (steady), the Greens 13 MPs (steady), NZ First 7 MPs (steady), Internet-Mana 4 MPs (up from 3), Act 2 MPs (steady) and UnitedFuture 1 MP (steady). The Maori Party would not retain any seats. Parliament would have 121 MPs and a government would be required to have the support of 61 MPs on confidence and supply.

Under this scenario, National could only govern with the support of NZ First with whom it would hold 64 seats (up from 63 last week). Labour could also form a government with the Greens, Internet-Mana and NZ First, with a combined 61 seats.

Were the Maori Party to win Waiariki, Parliament would be the same as above except that Labour would have 36 MPs and the Maori Party one. In this case, a National/Act/UnitedFuture/Maori Party government would be a possibility, with 61 MPs, joining the potential National/NZ First and Labour/Green/Internet-Mana/NZ First governments as an option.

Given that NZ First will hold the balance of power under the primary scenario, iPredict has also analysed its bundle of stocks forecasting NZ First’s decision-making should it hold the balance of power. This indicates its preference is continuing to shift more strongly towards National. There is a 53% probability NZ First would support a National-led government (down from 55% last week) but a 12% probability he would give confidence and supply to neither National nor Labour (up from 4% last week) favouring the larger bloc, which the market indicates would be National-led. There is a 34% probability Mr Peters would support a Labour-led Government (down from 41%)

Overall, National now has an 81% probability of leading the next government, down from 82% last week.

Post Election Developments

David Cunliffe’s immediate position as Labour leader has improved. There is now a 58% probability he will depart as leader by the end of 2014 (down from 65% last week), an 80% probability he will depart by the end of 2015 (down from 86%), an 85% probability he will depart by the end of 2016 (down from 88%) and a 93% probability he will depart by the end of 2017 (down from 95%).

In National, John Key’s short-term position remains broadly steady. He now has a 12% probability of departing by the end of 2014 (up from 11% last week), a 31% probability of departing as leader by the end of 2015 (down from 33% last week), a 52% probability of departing by the end of 2016 (down from 55%), but an 82% probability of departing by the end of 2017 (up from 77%).

Following a controversial debate on TV3’s The Nation over the weekend, both Labour’s Grant Robertson and National’s Steven Joyce’s probability of being the next leaders of their party have fallen, although both remain favoured.

Mr Robertson now has a 60% probability of being the next Labour leader, (down from 66% last week). David Parker remains in second-place with 16% probability (up from 15%), followed by Andrew Little on 9% (up from 5%) and Jacinda Ardern on 5% (down from 8%).

For his part, Mr Joyce now has a 40% probability of succeeding Mr Key as National Party leader, (down from 45% last week). He is followed by Judith Collins on 18% probability (up from 17%), followed by Bill English on 8% (up from 7%), Paula Bennett on 6% (down from 7%) and Simon Bridges on 5% (down from 7%). “Other” is on 8%, up from 7% last week.

Labour’s chances of winning the 2017 election have fallen to 47% (from 50% last week and 52% the week before). National has a 50% probability of winning in 2017.

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 9.28 am today.

ENDS

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