iPredict Ltd 2014 Election Update #32

2014 ELECTION UPDATE #32

Tuesday 26 August 2014

www.ipredict.co.nz

Key Points:

• National begins recovery from post-Hager crash

• NZ First may miss out on 5% making Nat/Act/UF government most likely

• If NZ First returns, it is expected to back National

• Race in Waimakariri narrows

• Cunliffe looks doomed by end of 2015, and Key expected to step down the same year

• Ardern and Bennett move into second place behind Robertson and Joyce as next main party leaders

• www.electionresults.co.nz attracting strong traffic

Commentary:

The combined wisdom of iPredict’s 8000 registered traders suggests National has begun a recovery after its prospects crashed last week following the release of Nicky Hager’s book Dirty Politics. The governing party’s forecast party vote is back above 44% and its main support partner, Act, is now expected to win three MPs. David Cunliffe looks increasingly doomed as Labour leader with an 89% of leaving the job before the end of 2015, although National leader John Key is also expected to step down by the end of the same year, with 58% probability. While Labour’s Grant Robertson and National’s Steven Joyce remain favoured to take over from Mr Cunliffe and Mr Key, Labour’s Jacinda Ardern and National’s Paula Bennett are now both serious contenders, each with a 19% probability chance of being the next leader of their party. Economic prospects are broadly stable with a small drop in growth prospects and a small improvement in the forecast current account deficit.

Economic Context

Growth expectations have slipped fractionally 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 1.1% in the December quarter (down from 1.2% last week). 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 the December quarter (steady).

Forecasts for the current account deficit have improved fractionally. The forecast deficit for the June quarter is 2.7% of GDP (down from 2.8% last week), 3.7% in the September quarter (steady) and 3.9% in the December quarter (steady).

The fiscal outlook remains finely balanced. There is now a 52% probability of a fiscal surplus in 2014/15 (up from 50% last week, 48% the week before and 34% three weeks ago). But the forecast size of the 2014/15 fiscal surplus is down to 0.16% of GDP, from 0.21% 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 quarter is expected to be 1.5% (steady compared with last week) and 1.7% in the December quarter (steady).

Interest-rate expectations are also broadly stable. Compared with the rate of 2.5% at the start of 2014, the market is pricing that the OCR will be up 102 basis points in September (up from 101 points last week), 105 in October (steady), 111 in December (down from 112), 116 in January 2015(down from 117), 132 in March 2015 (down from 134), 141 in April 2015 (down from 142) and 157 in June 2015 (down from 158). There is now a 92% probability the Reserve Bank will leave the OCR unchanged on September 11, nine days before the election (up from 90% last week).

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% (steady compared with last week).

Of major parties, National is expected to win 44.2% of the party vote (up from 42.6% last week). Labour is expected to win 30.3% (down from 30.5%) and the Green Party is expected to win 12.0% (down from 12.8%) meaning the combined Labour/Green vote is now 42.3% (down from 43.3% last week).

Of smaller parties, NZ First’s expected party vote is down again to 4.1% (from 4.5% last week and 5.5% the week before), the Conservative Party is on 3.0% (down from 3.6% last week and 4.0% the week before), Internet Mana is on 3.1% (down from 3.3% last week and 3.7% the week before),Act is on 1.8% (up from 1.5% last week), the Maori Party is on 0.5% (down from 0.6%), UnitedFuture is on 0.4% (down from 0.5%), the Aotearoa Legalise Cannabis Party is on 0.1% (down from 0.2%) and the Civilian Party is on 0.1% (steady).

Electorate Contests

In electorate contests, Mana is gaining in strength with an 85% probability of winning at least one seat (up from 79% last week and 73% the week before). Its expected electorate representation has now up to 1.2 MPs (up from 0.9 MPs 1.1 MPs last week). The probability Mana leader Hone Harawira will win Te Tai Tokerau is now 83% (up from 75% last week) and its candidate in Waiariki, Annette Sykes, is climbing back up 38% probability of winning her seat (after a significant tumble to 29% last week).

Act’s probability of winning at least one electorate seat is up to 84% (from 80% last week), and its expected electorate representation remains 0.8 MPs (steady). The market is pricing that its candidate David Seymour has a 79% probability of winning Epsom (down from 80% last week).

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

The Maori Party’s position has weakened again. It now has a 48% probability of winning an electorate (down from 50% last week) and its expected electorate representation remains just 0.6 MPs (steady). The probability co-leader Te Ururoa Flavell will win Waiariki is now 43% (down from 50% 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 Palmerston North, Waimakariri, Port Hills and Christchurch Central. In Palmerston North, Labour incumbent Ian Lees-Galloway remains only marginally ahead of National’s Jono Naylor, with a 53% probability of winning the seat (up from 51% last week). In Waimakariri, National’s Matthew Doocey now has a 53% probability of holding out Labour’s Clayton Cosgrove (down from 57% last week).In Port Hills, National challenger Nuk Korako now has a 55% probability of defeating Labour incumbent Ruth Dyson (compared with a dead-heat last week). In Christchurch Central, Labour’s Tony Milne has a 69 probability of taking the seat off National incumbent Nicky Wagner.

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 39 MPs (down from 40), the Greens 16 MPs (down from 17), Internet-Mana 4 MPs (steady), Act 3 MPs up from 2) 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 61 seats and could form a government.

Were the Maori Party to win Waiariki, Parliament would be the same as above except that the Greens would have only 15 MPs and the Maori Party one, meaning a National/Act/UnitedFuture government would have 61 MPs, or 62 with the Maori Party.

However, the market still suggests NZ First has a 73% 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 and the Maori Party winning Waiariki, Parliament would be as follows: National 54 MPs, Labour 37 MPs, the Greens 15 MPs, NZ First 6 MPs, Internet-Mana 4 MPs, Act 3 MPs UnitedFuture 1 MP and the Maori Party 1 MP. In this case, NZ First would hold the balance of power between National/Act/UnitedFuture and Labour/Green/Internet-Mana. The Maori Party’s vote would not be relevant.

iPredict’s bundle of stocks forecasting NZ First’s decision-making if it holds the balance of power indicates a tilt back towards National. There is now a 52% probability NZ First would support a National-led government (up from 45% last week) and a 4% probability it would give confidence and supply to neither National nor Labour (down from 5% last week) favouring the larger bloc, which the market now indicates would be National-led. There is now a 43% probability NZ First would provide confidence and supply to a Labour-led Government (up from 42% last week).

Overall, National remains favoured, with a 73% probability of leading the next government, up from a post-April low of 72% last week.

Post Election Developments

David Cunliffe’s immediate position as Labour leader continues to improve although his longer-term prognosis is worsening. There is now only a 48% probability he will depart as leader by the end of 2014 (down from 50% last week). However, there is an 89% probability he will depart by the by the end of 2015 (up from 80% last week), a 92% probability he will depart by the end of 2016 (up from 85%) and a 95% probability he will depart by the end of 2017 (up from 93%).

In National, John Key’s short-term position, which was in free-fall last week, has stabilised. He now has a 40% probability of departing by the end of 2014 (down from 41% last week), a 58% probability of departing as leader by the end of 2015 (up from 57% last week), a 73% probability of departing by the end of 2016 (up from 71%), and an 89% probability of departing by the end of 2017 (up from 88%).

Grant Robertson’s position has weakened over the last week and he now has a 60% probability of being the next Labour leader, (down from 65% last week). Jacinda Ardern has moved into second place with 19% probability of being the next Labour leader, ahead of Andrew Little on 9% (down from 10% last week) and David Parker on 7% (down from 13%).

In National, Steven Joyce remains dominant with a 45% probability of succeeding Mr Key as National Party leader (up from 43% last week). Paula Bennett have moved into second place on 19%, ahead of Bill English on 10% and Simon Bridges on 9%.

National continues to be favoured to win the 2017 election, with 50% probability (steady), ahead of Labour on 48% probability (down from 49%).

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 3.37 pm today.

ENDS

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