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iPredict 2014 Election Update: National could govern with Act

IPREDICT LTD

2014 ELECTION UPDATE #16

Tuesday 29 April 2014

www.ipredict.co.nz


Key Points:

Inflationary expectations ease again

Labour party-vote forecast slumps in favour of National

National has several possible governing options, including with Act alone

Conservatives move closer to 5%

Maori Party remains on knife-edge and Wairarapa now highly marginal

Commentary:

The combined wisdom of iPredict’s 7000 registered traders now suggests the National-led Government is on track for re-election in September. A slump in Labour’s forecast party vote to National’s benefit means Prime Minister John Key would have several governing options, including being able to form a government with just the support of the ACT Party, while the Conservative Party has also moved closer to the 5% threshold necessary for parliamentary representation. The Maori Party’s future depends on a tight race for co-leader Te Ururoa Flavell to retain his Waiariki electorate and Wairarapa has become highly marginal. Inflationary expectations continue to ease.

Economic Context

Growth expectations remain largely unchanged this week. Growth in the March 2014 quarter is expected to be 1.0% (steady compared with last week), 1.1% in the June quarter (steady), 1.0% in theSeptember quarter (down from 1.1%) and 1.1% in the December quarter (steady). Forecast annual growth for 2014 is now 4.3%, down from 4.4% last week.

There have been no changes to unemployment expectations. Unemployment is expected to be 5.8% in the March 2014 quarter (steady compared with last week), 5.6% in the June quarter (steady), 5.4% in the September quarter (steady) and 5.5% in the December quarter (steady).

Forecasts for New Zealand’s current account deficit have moved marginally this week, with forecasts of 3.0% for the March 2014 quarter (steady compared to last week), 3.6% in the June quarter (up from 3.5%), 3.9% in the September quarter (down from 4.0%) and 3.9% in the December quarter (down from 4.0%).

The probability of a fiscal surplus in 2014/15 remains 95% (steady compared to last week). The surplus forecast for 2014/15 is 0.48% of GDP, down from 0.51% last week. The 2015/16 surplus is expected to be 0.93% of GDP and 2.0% of GDP for 2016/17 (both steady).

Inflationary expectations have again fallen this week. Annual inflation is expected to remain below the Reserve Bank’s 2% target midpoint through 2014. Annual inflation to the end of the June quarteris expected to be 1.5%, (down from 1.7% last week), 1.7% in the September quarter (steady) and 1.6% in the December quarter (down from 1.9%).

The market is forecasting a 95.8% probability that the Reserve Bank will increase the Official Cash Rate (OCR) by 25 basis points at its next review on 12 June. Compared with the rate of 2.5% at the start of 2014, the market is pricing that the OCR will be up 70 basis points in June (up from 66 last week,) 82 in July (steady), 94 in September (up from 93), 104 in October (up from 103), 117 inDecember (up from 116), 128 in January 2015 (up from 126) and 144 in March 2015 (up from 141).

Other Issues

New Zealand’s chances of being elected to the UN Security Council for 2015-16 are up again to 60% from 52% last week. The probability Helen Clark will be appointed the next UN Secretary Generalis 31% (steady). The probability New Zealand will sign a Free Trade Agreement with South Korea before 1 December 2014 is steady at 47%.

The probability the US Congress will ratify the yet-to-be-signed Trans Pacific Partnership (TPP) agreement before 1 July 2015 remains steady at 2.5%, and there remains just a 37.8% probability a deal will be ratified by the US Congress by 1 July 2017.

Party Vote

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 95% probability. The party vote turnout is expected to be 74.4% (steady), marginally up from the 74.2% turnout in 2011.

Of major parties, National is expected to win 45.77% of the party vote, up significantly from 43.46% last week. Labour is down significantly to 27.87%, compared with 30.17% last week, while theGreen Party’s expected vote is marginally down to 10.26%, from 10.69% last week.

Of smaller parties, NZ First remains steady on 5.3%. The Conservative Party’s forecast party vote has improved to 4.2%, from 3.5% last week, although is still short of the 5% threshold required for parliamentary representation unless it wins an electorate seat. Act is steady on 2.2% and UnitedFuture is on 0.6%, also steady compared with last week.

Mana remains steady on 1.0%, the Maori Party on 1.1% (up from 1.08%) the Internet Party on 1.2% (down from 1.37%) and Aotearoa Legalise Cannabis Party on 0.29% (steady).

Electorate Contests

The Conservative Party’s probability of winning at least one seat is now 30%, down from 34% last week, and its expected electorate representation is 0.31 MPs, down from 0.36 last week. The Conservatives are not expected to win any specific electorate, but their probability of winning East Coast Bays is up again, to 31% from 29% last week. The party continues to have a 12% probability of winning Upper Harbour and a 12% probability of winning Rodney (both steady).

Act’s probability of winning at least one electorate seat remains steady at 70% and its expected electorate representation is also unchanged at 0.71 MPs. The market is pricing that it has a 71% probability of winning Epsom (steady).

UnitedFuture prospects remain broadly unchanged this week. It has a 78% probability of winning at least one seat (up from 77% last week) and has expected electorate MP representation of 0.79 MPs (steady). Its probability of winning Peter Dunne’s Ohariu electorate remains 79% (steady).

In the Maori electorates, Mana now has an 81% probability of winning at least one seat (up from 79% last week) and its expected electorate representation is 1.0 electorate MPs, down from 1.13 MPs. The Maori Party retains just a 57% probability of winning a seat (steady) and its expected electorate representation is 0.71 MPs, steady.

Mana’s probability of winning Te Tai Tokerau has improved to 80%, up from 75% last week, and the probability it will win Waiariki remains 43% behind Maori Party Leader Te Ururoa Flavell on 55% probability (steady). The probability the Maori Party will retain Tariana Turia’s Te Hauauru electorate remains unchanged on 20% but Labour is still overwhelmingly favoured to win with 80% probability.

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

Port Hills, held by Labour’s Ruth Dyson, is still the most marginal electorate in the country, with just a 53% probability she will retain it over a National Party challenger.

National’s David Bennett continues to be in trouble in Hamilton East, with just a 55% chance of retaining his seat ahead of his Labour challenger, Cliff Allen.

Wairarapa is now increasingly marginal for National, with Alastair Scott having just a 60% probability of retaining retiring MP John Hayes’ seat over Labour’s Kieran McAnulty.

Labour’s Phil Twyford has recovered in Te Atatu, and now has a 71% probability he will hold it over a National challenger, up from 62% last week.

Other marginal seats are Napier, Waimakariri and West Coast-Tasman. Labour’s Stuart Nash now has a 65% probability (down from 69% last week) of taking Napier from National, while Labour’s Clayton Cosgrove has a 75% probability of taking Waimakariri from National (steady) and Labour has a 75% probability of holding on to West Coast-Tasman (steady).

In Rotorua, the position of National’s Todd McClay has weakened, and he now has a 77% of retaining his seat against challenger Tamati Coffey, down from 80% last week.

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 55 last week), Labour 36 MPs (down from 38), the Greens 13 MPs (down from 14), NZ First 7 MPs (steady), Act 3 MPs (steady), and Mana, the Maori Party and UnitedFuture 1 MP each. 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 would enjoy a number of potential governing arrangements. A National/Act government would have 61 seats, a National/Act/UnitedFuture Government 62 seats, a National/Act/UnitedFuture/Maori Party Government 63 seats or a National/NZ First Government 65 seats. There is no viable scenario where the Labour Party could form a government.

In light of speculation about a Mana/Internet Party arrangement, iPredict has also modelled what would happen if the parties merged for the purposes of the party vote and maintained their combined forecast party vote of 2.2%. Under such a scenario, National would have 57 seats, Labour 35, the Greens 13, NZ First 7, Mana/Internet 3, Act 3 and the Maori Party and UnitedFuture 1 each. 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 would again be re-elected and have multiple governing arrangements available. National/Act/UnitedFuture would have 61 MPs, National/Act/UnitedFuture/Maori Party 62 seats and National/NZ First 64 seats. A Labour/Green/Mana-Internet/NZ First government would have 58 MPs, and be unable to form a government.

Should Winston Peters have the balance of power after the election, iPredict’s bundle of stocks forecasting NZ First’s decision-making indicates a National-led government would be favoured. There is a 44% probability NZ First would give confidence and supply to National (up from 34% last week), a 40% probability NZ First would give confidence and supply to Labour (down from 47% last week), and a 15% probability he would give confidence and supply to neither (down from 19% last week).

Overall, National has a 73% probability of leading the next government, steady compared to last week. Five months before the 2011 election, National had an 87% chance of being re-elected.

Post Election Developments

David Cunliffe’s position as Labour leader has improved this week. There is now only a 64% probability he will depart as leader by the end of 2015, down from 68% last week, a 71% chance he will depart by the end of 2016 (down from 74% last week) and an 80% probability he will step down by the end of 2017 (down from 82%).

Grant Robertson and Jacinda Ardern remain favoured to succeed Mr Cunliffe. Mr Robertson has a 60% probability of being the next Labour leader (steady), followed by Ms Ardern with 24% probability (steady). Andrew Little also remains steady with 7% probability.

In National, there is a 35% probability John Key will depart as leader before the end of 2015 (up from 33% last week), a 55% probability he will depart by the end of 2016 (up from 54%) and a 80% probability he will depart by the end of 2017 (up from 79%).

Steven Joyce remains the favourite to succeed Mr Key as National Party leader, with 37% probability (steady compared with last week), followed by Judith Collins on 27% probability (steady).

Labour’s chances of winning the 2017 election are steady on 53%.

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 9.42 am today.

ENDS

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