2014 Election Update #7
2014 Election Update #7
Wednesday 26 February 2014
• September election now picked, with 27th most likely
• Chances of a TPP being ratified by US Congress plunge
• UN Security Council seat looks in reach
• December 2013 quarterly growth expected to have been 1.2%
• Small improvement in current account deficit expectations
• Fiscal surplus now overwhelmingly expected in 2014/15
• Interest rate rises to be slightly slower than previously expected
• National and Act gain at expense of Labour and the Greens
• Conservatives’ prospects reach new low
• National/Act/UnitedFuture could govern without other supporters, even in NZ First reached 5%
• 62% probability Cunliffe will go as Labour leader by end of 2015
An early election, on 27 or 20 September, now looks likely, according to the combined wisdom of iPredict’s more than 7000 registered traders. This week’s snapshot of the New Zealand predictions market, owned by Victoria University of Wellington, also points to somewhat slower interest rate rises through 2014 than previously anticipated with traders more bullish about the prospects of a fiscal surplus in 2014/15 despite bad news on Friday in the Treasury’s latest update of the Government’s Financial Statements. The controversial Trans Pacific Partnership looksdead in the water for the foreseeable future while the prospects of New Zealand winning a seat on the United Nations Security Council have improved. John Key’s National Party is now picked to lead the next government without needing the support of NZ First, regardless of whether or not the Winston Peters-led party reaches the 5% threshold. The Conservative Party’s prospects of reaching Parliament have reached a new low.
Growth expectations for 2014 have remained steady this week, with annual growth continuing to be forecast to be 4.87%. Quarterly growth is expected to be 1.17% in the March 2014 quarter, 1.18% in the June quarter, 1.18% in the September quarter and 1.26% in the December quarter.
There has however been a change in expectations for the December 2013 quarter, with the market now expecting that Statistics New Zealand will report on 20 March that growth was 1.21% for the quarter, up from 1.01% last week.
Expectations for the unemployment rate have remained stable. Unemployment is now expected to be 5.83% in the March 2014 quarter (up from 5.82% last week), 5.68% in the June quarter (steady), 5.59% in the September quarter (steady) and 5.49% in the December quarter (steady).
Current account deficit expectations have improved marginally. The current account deficit is now expected to have been 3.10% of GDP in theDecember 2013 quarter (down from 3.32% last week), and to be 3.37% in the March 2014 quarter (steady), 3.50% in the June quarter (down from 3.60% last week), 4.01% in the September quarter (steady) and 4.00% in the December quarter (steady).
Expectations for a fiscal surplus in 2014/15 have improved over the last week, despite worse-than-expected Financial Statements for the Government of New Zealand through to 31 December 2013 being published on Friday. There is now a 93.8% probability of a fiscal surplus in 2014/15, up from 85.0% last week. The surplus in 2014/15 is now expected to be 0.49% of GDP, up from 0.48% last week. The surplus forecast for 2015/16 is up to 0.82% of GDP (steady) and 2.0% of GDP for 2016/17 (steady).
There have been no significant changes in inflationary expectations, 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 1.56% (down from 1.58% last week) and will rise to 1.92% in the June quarter, 2.10% in the September quarter and 2.10% in the December quarter (all steady compared with the last two weeks).
Interest rate expectations have again eased this week. The market continues to indicate a 98.9% probability the Reserve Bank will raise the Official Cash Rate (OCR) in 2014. However, the probability it will be raised on 13 March is now down to just 79.1%, from 94.7% last week and 95.1% the week before. Compared with the current rate of 2.50%, the market is pricing that the OCR will be up 35.6 basis points in April (down from 40.3 last week and 44.7 the week before), 55.2 in June (down from 59.6 and 65.3), 68.5 in July (down from 73.0 and 77.3), 81.0 inSeptember (down from 85.4 and 89.7), 90.7 in October (down from 90.7 and 99.4) and 102.8 in December (down from and 107.5 111.5).
There continues to be a 92.4% probability the Reserve Bank’s restrictions on high loan-to-value ratio mortgages will stay in place through 2014.
New Zealand’s bid to be elected to the UN Security Council for 2015-16 continues to look up, with a 64.0% probability it will be successful, up from 55.0% last week and 48.3% the week before. However, the probability New Zealand will sign a Free Trade Agreement with South Koreabefore 1 December 2014 has fallen to 48.3% compared with 53.3% last week.
The probability the US Congress will ratify the yet-to-be-signed Trans Pacific Partnership (TPP) agreement before 1 July 2015 has plunged to just 2.5% from 37.8% last week and from 40.1% the week before. There is only a 35.4% probability a deal will be ratified by the US Congress by 1 July 2017.
There continues to be a 93.5% probability Genesis Energy will be floated on the NZX before 1 January 2015 (up from 93.5% last week) but just a 20.0% probability the Parental Leave and Employment Protection (Six Months Paid Leave) Amendment Bill will receive the Royal Assent byyear’s end (up from 19.9% last week and 18.2% the week before).
Election Date & Personnel
Sentiment has shifted strongly towards the election being held in September, with a 47.5% probability it will be held in that month, up from 31.0% last week. The most likely day is now Saturday 27 September, with 28.9% probability (up from 10.0% probability last week), followed by Saturday 20 September, with 16.8% probability (down from 21.4%).
Other possibilities are Saturday 18 October, with 14.2% probability (down sharply from 45.0% last week) and Saturday 1 November, with 10.0% probability (down from 19.8%).
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 90% probability.
A party vote turnout of 75.0% is forecast (steady), marginally up from the 74.2% turnout in 2011.
National and Act have gained this week at the expense of Labour, the Greens, NZ First and the Conservatives.
Of the major parties, National is expected to win 44.13% of the party vote, (up from 43.33% last week and 42.02% the week before), Labour32.00% (down from 32.57% last week and 34.03% the week before) and the Green Party 9.13% (down from 9.76% last week but up from 9.08% the week before).
Of smaller parties, NZ First is now expected to narrowly miss out on the 5% threshold under the MMP electoral system when parties’ likely support is adjusted to sum to 100%. Winston Peters’ party is expected to win 4.92% of the party vote, down from 5.06% last week and 5.07% the week before.
The Conservative Party also continues to fall, and is now picked to win 3.64% of the party vote, down from 3.82% last week and 4.02%) the week before.
Act is up to 2.86% (compared with 2.10% last week and 2.30% the week before), the Maori Party is on 1.18% (down from 1.24% over the last two weeks, the Internet Party 0.76% (compared with 0.69% and 0.81%), Mana 0.39% (down from 0.48% over the last two weeks), UnitedFuture0.49% (up from 0.48% over the last two weeks, Aotearoa Legalise Cannabis Party 0.29% the last two weeks), and the Civilian Party andDemocrats for Social Credit remain steady on 0.10% each.
The Conservative Party has reached a new low with only a 35.0% probability of winning at least one electorate seat, down from 48.3% last week and 48.2% the week before. It now has expected representation of just 0.41 electorate MPs, down from 0.53 last week and 0.51 the week before.
Of electorate bundles launched so far, the Conservatives are not expected to win any specific electorate, with just a 16.8% probability of winningEast Coast Bays (down from 19.8% last week, 25% two weeks ago and 28% the week before), a 13.0% probability of winning Rodney (new stocks), and a 5.7% probability of winning Upper Harbour (compared with 11.9% last week, 8% two weeks ago and 5% the week before).
The four other small parties in parliament all appear safe.
Mana continues to have a 90.0% probability and the Maori Party an 83.2% probability of winning at least one seat and have expected electorate representation of 1.14 and 1.14 MPs respectively. Mana has an 85.8% probability of winning Hone Harawira’s Te Tai Tokerau electorate (down from 90.0% last week) and the Maori Party an 80.0% probability of winning Te Uruoa Flavell’s Waiariki (steady). Labour is favoured to win Tariana Turia’s Te Hauauru electorate, with 75.0% probability (up from 71.1% last week). Pita Sharples’ Tamaki Makaurau electorate now appears to be safe Labour, with 87.0% probability of being won by a Labour candidate.
UnitedFuture and Act also look secure. UnitedFuture has an 81.3% probability of winning at least one seat (up from 79.1% last week) and has expected electorate MP representation of 0.81 MPs (up from 0.79 last week). Its probability of winning Peter Dunne’s Ohariu electorate is 81.8% (up from 75.0% last week). Act continues to have a 78.0% probability of winning at least one electorate seat but has improved its expected electorate representation to 0.99 MPs, up from 0.78 last week. It now has a 73.1% probability of winning Epsom, down from 75.0% last week.
Contract bundles for every electorate will be launched progressively through the year.
Election Result & Alternative Scenarios
Based on the party vote forecasts and the electorate results above, Parliament would be as follows: National 58 MPs (up from 54 last week), Labour 43 MPs (up from 41), the Greens 12 MPs (steady), Act 4 MPs (up from 3), the Maori Party 2 MPs (steady), UnitedFuture 1 MP (steady), Mana 1 MP (steady) and NZ First 0 MPs (down from 6). 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, the current National/MaoriParty/Act/UnitedFuture governing arrangement could continue with 65 MPs. Alternatively, National could form a coalition with Act alone (62 MPs) or with UnitedFuture and the Maori Party (61 MPs). A Labour-led government would not be viable.
Given how close NZ First is to the 5% threshold, iPredict has also analysed what would happen if it did win 5%. In such a case, Parliament would be as follows: National 56 MPs, Labour 40 MPs, the Greens 12 MPs, NZ First 6 MPs, Act 4 MPs, and the Maori Party, Mana and UnitedFuture one MP each. Parliament would have 121 MPs but a government would still only be required to have the support of 61 MPs on confidence and supply.
Under this scenario, the current National/Maori Party/Act/UnitedFuture governing arrangement could therefore continue with 62 MPs. A National/Act/UnitedFuture arrangement would also be possible, with 61 MPs.
A Labour/Green/NZ First/Mana/Maori Party/UnitedFuture government would also be a theoretical possibility with 61 MPs.
Should Winston Peters have the balance of power after the election, iPredict’s bundle of stocks forecasting NZ First’s decision-making indicates a 44.2% probability it would give confidence and supply to National (up from 35.8% last week), and a 35.7% probability it would give confidence and supply to Labour (down from 45.3% last week). The market also indicates a 10.0% probability (up from 9.4% last week) that NZ First would not give confidence and supply to any party, which would favour the larger bloc, and a 10.0% probability (up from 9.4% last week) that some other unexpected event could occur.
Overall, the market continues to forecast a National-led government, with 62.5% probability, up from 61.5% last week.
Post Election Developments
The market indicates a 62% probability that David Cunliffe will depart as leader of the Labour Party by the end of 2015 (up from 59% last week) and a 73% probability he will depart by the end of 2016 (up from 70% last week).
Grant Robertson remains favourite to be the next Labour leader, with 48.3% probability (down from 50.0% last week), ahead of Jacinda Ardern (20.9% probability, up from 14.2% last week) and Shane Jones (7.4%, down from 11.9%).
In National, there is a 39% probability John Key will depart as leader before the end of 2015 (down from 51% last week) and a 55% probability he will depart by the end of 2016 (down from 70% last week).
Within National, a leadership race would be tight. Judith Collins is favoured with 31.0% probability (up from 30.0% last week), only marginally ahead of Steven Joyce on 29.6% probability (up from 25.7%) with Simon Bridges third-most likely on 14.0% (steady).
Labour continues to be marginally favoured to win the 2017 election with 53.3% probability (steady).
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 2.17 pm today.