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Ipredict 2014 Election Update #3 - Wed 29 Jan

IPREDICT LTD

2014 ELECTION UPDATE #3

Wednesday 29 January 2014

www.ipredict.co.nz 

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 the December 2013 quarter, and will be 1.18% in the March 2014 quarter, 1.19% in the June quarter, 1.16% in the September quarter, and 1.21% in the December 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 the December 2013 quarter and to fall to 5.91% in the March 2014 quarter, 5.88% in the June quarter, 5.85% in theSeptember quarter and 5.83% in the December quarter.

Current account deficit expectations are 3.49% of GDP for the December 2013 quarter, 3.50% in the March 2014 quarter, 3.60% in the June quarter, 4.01% in the September quarter and 4.00% in the December quarter.

Expectations for a fiscal 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 in 2014/15 (down from the 0.56% of GDP expected last week) and to rise to 0.82% of GDP in 2015/16 (down from 0.83% last week).  Stocks forecasting the 2016/17 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 the March quarter is expected to be 1.62%, rising to 1.91% in the June quarter, 2.02% in the September quarter and 2.11% in the December quarter.

The market continues to indicate a 98.9% probability the Reserve Bank will raise the Official Cash Rate (OCR) in 2014.  However, expectations of an increase tomorrow have fallen further, with a 75% probability there will be no change compared with 67.6% last week.  Expectations of a 25-point rise on 13 March have increased from 70.4% last week to 81.3% this week.  A further 25-point rise is expected in either April or June. By 30 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 on high 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 likely month.  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 to remain in their roles until nomination day. 

Expectations for the leadership 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’s Epsom 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 now both expected to seek re-election.  The probability Murray McCully will retire continues to ease, from 47% two weeks ago, to 43% last week and 40% this week.

Party Vote

The party 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 the major 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%).

No other parties are expected to reach the 5% threshold under the MMP electoral system.  The Conservative Party is expected to win 4.40%, NZ First 4.40%, Act 1.70%, the Maori 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 and UnitedFuturecontinue 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, the Maori Party’s prospects of winning at least one seat have also improved from 61.5% last week to 67.5% this week.  The Conservatives 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).

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

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 its probability 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 the 2017 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

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