IPREDICT LTD

2014 ELECTION UPDATE #31

Tuesday 19 August 2014

www.ipredict.co.nz

Key Points:

• Election race narrows significantly

• National party vote now below Labour/Greens

• National’s probability of leading next government dips to 72%

• Joyce expected to take over as National leader before end of 2015, as Collins’ prospects fall

• www.electionresults.co.nz relaunching today

Commentary:

The combined wisdom of iPredict’s 8000 registered traders suggests National has taken a considerable hit following the release of Nick Hager’s book Dirty Politics but still remains favoured to lead the next government, although with only 72% probability, its worst position since May. The party’s forecast party vote has slumped to 42.6%, behind Labour/Green on a combined 43.3%, and the probability John Key will step down National’s leader before the end of 2015 has leapt to 57%. Judith Collins’ probability of replacing Mr Key has fallen below 10%, with Steven Joyce now the clear favourite.

Economic Context

Growth expectations remain steady this week. Growth in the June quarter is 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 remains 4.1%.

Unemployment expectations remain unchanged. Unemployment is expected to be 5.5% in the September quarter (steady compared with last week) and 5.5% in theDecember quarter (steady).

Forecasts for the current account deficit also continue to be steady. The forecast deficit for the June quarter is 2.8% of GDP (steady compared with last week), 3.7% in theSeptember quarter (steady) and 3.9% in the December quarter (steady).

The fiscal outlook has improved slightly, although there is still only a 50% probability of a fiscal surplus in 2014/15 (up from 48% last week and 34% the week before). The forecast surplus for 2014/15 remains 0.21% of GDP (steady compared with last week). 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 are steady and remain below the Reserve Bank’s 2% target midpoint through 2014. Annual inflation to the end of the September quarteris expected to be 1.5% (steady compared with last week) and 1.7% in the December quarter (steady).

Interest-rate expectations are also stable. 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(steady compared with last week), 105 in October (steady), 112 in December (steady), 117 in January 2015 (steady), 134 in March 2015 (up from 133), 142 in April 2015 (up from 140) and 158 in June 2015 (up from 156).

There remains a 90% probability the Reserve Bank will leave the OCR unchanged on September 11, nine days before the election.

Party Vote

All current party leaders are expected to remain in their roles until nomination day with at least 97% probability. The party vote turnout is expected to be 75.0% (up from 74.4% last week).

Of major parties, National is expected to win 42.6% of the party vote (down from 44.7% last week). Labour is expected to win 30.5% (up from 28.3%) and the Green Party is expected to win 12.8% (up from 10.6%) meaning the combined Labour/Green vote is now 43.3%, ahead of National’s party vote.

Of smaller parties, NZ First’s expected party vote is 4.5% (down from 5.5% last week), the Conservative Party is on 3.6% (down from 4.0%), Internet Mana is on 3.3% (down from 3.7%), Act is on 1.5% (down from 1.8%), the Maori Party is on 0.6% (down from 0.7%), UnitedFuture is on 0.5% (up from 0.2%), the Aotearoa Legalise Cannabis Party is on 0.2% (steady) and the Civilian Party is on 0.1% (steady).

Electorate Contests

In electorate contests, Mana has a 79% probability of winning at least one seat (up from 73% last week) but its expected electorate representation has fallen to 0.9 MPs (down from 1.1 MPs). The probability Mana leader Hone Harawira will win Te Tai Tokerau is 75% (up from 71% last week) but the position of its candidate in Waiariki, Annette Sykes, has weakened to 29% probability of winning (down from 34%).

Act’s probability of winning at least one electorate seat has eased to 80% (from 84% last week), and its expected electorate representation has fallen to 0.8 MPs (down from 0.9 MPs last week). The market is pricing that its candidate David Seymour has an 80% probability of winning Epsom (down from 83% last week).

UnitedFuture has an 83% probability of winning at least one seat (down from 85% last week) and its expected electorate MP representation is 0.8 MPs (steady). Its probability of winning Peter Dunne’s Ohariu electorate is 82% (down from 83% last week).

The Maori Party’s position has recovered somewhat. It now has a 50% probability of winning an electorate (up from 42% last week) and its expected electorate representation is 0.6 MPs (steady). The probability co-leader Te Ururoa Flavell will win Waiariki is now 50% (up from 40% last week).

The Conservative Party, the Greens and NZ First continue not to be expected to win electorate seats.

The four most marginal seats, excluding Waiariki mentioned above, are Port Hills, Palmerston North, Waimakariri and West Coast-Tasman.

Port Hills is a dead-heat between National challenger Nuk Korako and Labour incumbent Ruth Dyson, both on 50% probability.

In Palmerston North, Labour incumbent Ian Lees-Galloway remains only marginally ahead of National’s Jono Naylor, with a 51% probability of winning the seat (down from 53% last week).

In Waimakariri, National’s Matthew Doocey now has a 57% probability of holding out Labour’s Clayton Cosgrove (down from 60% last week).

In West Coast-Tasman, Labour incumbent Damien O’Connor has a 65% chance of holding out against National’s Maureen Pugh (down from 67% last week).

Election Result & Alternative Scenarios

Based on the party-vote and electorate forecasts above, Parliament would consist of: National 56 MPs (steady compared with last week), Labour 40 MPs (up from 36), the Greens 17 MPs (up from 13), Internet-Mana 4 MPs (down from 5), Act 2 MPs (steady) and UnitedFuture 1 MP (steady). Neither NZ First nor the Maori Party would retain any seats. 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 59 MPs and could not govern. A Labour/Green/Internet-Mana combination would be able to govern with 61 seats.

Were the Maori Party to win Waiariki, Parliament would be the same as above except that National would have only 55 MPs and the Maori Party one, meaning a National/Act/UnitedFuture/Maori Party government could not be formed.

However, the market is also suggesting that NZ First has a 72% probability of returning to parliament. If NZ First did win 5% of the party vote, with other parties winning the same vote shares as above, Parliament would be as follows: National 53 MPs, Labour 38 MPs, the Greens 16 MPs, NZ First 6 MPs, Internet-Mana 4 MPs, Act 2 MPs and UnitedFuture 1 MP. In this case, NZ First would hold the balance of power between National/Act/UnitedFuture and Labour/Green/Internet-Mana.

iPredict’s bundle of stocks forecasting NZ First’s decision-making if it holds the balance of power indicates a tilt towards Labour. There is now a 45% probability NZ First would support a National-led government (down from 56% last week) and a 42% probability NZ First would provide confidence and supply to a Labour-led Government (up from 33%). However, there is a 5% probability it would give confidence and supply to neither National nor Labour (down from 7% last week) favouring the larger bloc, which the market now indicates would be Labour-led.

Nevertheless, overall, National remains favoured, with a 72% probability of leading the next government, down from 83% last week, and the lowest it has been since May 2014.

Post Election Developments

David Cunliffe’s immediate position as Labour leader continues to improve although his longer-term prognosis remains poor. There is now only a 50% probability he will depart as leader by the end of 2014 (down from 56% last week, 58% the week before and 65% three weeks ago). However, there is an 80% probability he will depart by the by the end of 2015 (up from 78% last week), an 85% probability he will depart by the end of 2016 (up from 84%) and a 93% probability he will depart by the end of 2017 (steady).

In National, John Key’s short-term position has weakened dramatically. He now has a 41% probability of departing by the end of 2014 (up from 12% last week), a 57% probability of departing as leader by the end of 2015 (up from 34% last week), a 71% probability of departing by the end of 2016 (up from 56%), and an 88% probability of departing by the end of 2017 (up from 81%).

Grant Robertson’s position has strengthened over the last week and he now has a 65% probability of being the next Labour leader, (up from 60% last week). David Parker remains in second-place with 13% probability (down from 16%), followed by Andrew Little on 10% (down from 13%).

In National, Steven Joyce has a 43% probability of succeeding Mr Key as National Party leader, (up from 42% last week). Simon Bridges has moved into second place, with 13% probability (up from 5% last week), followed by Paula Bennett on 10% (steady) and Judith Collins on 10% (down from 19%).

National continues to be favoured to win the 2017 election, with 50% probability (steady), ahead of Labour on 49% probability (up from 47%).

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 7.35 am today.

ENDS

© Scoop Media