iPredict Election Update: Fears of Year-Long Recession Grow
iPredict Election Update: Fears of Year-Long Recession Grow
Key Points:
* Fears of
year-long recession grow
* Unleaded petrol expected
to exceed $2.30/litre, while inflation expectations rise
slightly compared with last week
* OCR, 90-Day Bank
Bills and home-mortgage rates expected to fall
*
New Left Party expected
* John Key forecast to be
re-elected, requiring one coalition partner
*
Collins, Finlayson and Bridges favourites to replace Power
as Justice Minister
* Contracts for Botany,
Kaikoura, Port Hills and Selwyn electorate winners to be
launched at 1.00pm today
* Contracts for 'Harawira
Party', New Citizen Party and Reform New Zealand party votes
to be launched at 3.00pm today
Commentary:
This week's snapshot from New Zealand's prediction market, iPredict, continues to forecast that John Key will be able to form a government following this year's General Election with just one coalition partner, while a new left-wing party involving at least two of Independent MP Hone Harawira, Unite National Secretary Matt McCarten and former Green MP Sue Bradford is now seen as more probable than not.
Mr Key's forecast re-election is despite the market continuing to forecast a double-dip recession and growing fears it will last for a full year. The market indicates a 53% probability that Statistics New Zealand will report on 24 March that New Zealand was in a double-dip recession in the December 2010 quarter (down from 60% last week). The probability the recession will extend into the March 2011 quarter has dropped slightly from 58% last week to 55% this week but the probability it will extend into the June 2011 quarter has risen markedly from 39% to 45%.
The probability the economy will be in recession in the September 2011 quarter has fallen from 18% to 17% over the last week, while the probability it will be in recession in the December 2011 quarter is steady at 14%.
Inflation expectations have risen marginally over the last week. Annual inflation is expected to be 4.5% for the March quarter and 5.1% for the June 2011 quarter, compared with 4.5% and 5.0% last week. Unleaded petrol prices are now expected to exceed $2.30 per litre in 2011. The probability it will exceed $2.20 per litre in 2011 has increased from 77% last week to 93% this week, while the probability it will exceed $2.30 per litre has now reached 68% compared with just 43% last week.
Despite this, there are growing expectations that interest rates will fall. The market now indicates a 90% probability the Reserve Bank will lower the Official Cash Rate (OCR) from its current 3.00% on 10 March, up from 70% last week, and up from less than 1% prior to the Christchurch earthquake. The bank is then expected to hold the OCR on 28 April (89% probability compared with 86% last week) and 9 June (93% probability compared with 84% last week).
Expected yields for 90-day bank bills have continued to fall since the Christchurch earthquake. Last week, the expected 90-day rate on 1 June 2011 was 2.81% and is now 2.70%. The expected 90-day rate on 1 September 2011 has fallen from 3.16% last week to 3.02% this week, while the expected rate on 1 December 2011 has fallen from 3.44% last week to 3.33% this week.
Average floating-rate mortgages are now strongly believed to have reached their peak. The probability they will reach 6.50% in 2011, from their current 6.39%, is now down to 26% from 40% last week. The probability they will reach 6.75% is now just 16% (compared with 21% last week) and the probability they will go to 7.00% is now down to 10% from 12% last week.
The market continues to indicate a 97% probability that the election will be held on Saturday 26 November.
Between now and then, all party leaders continue to be expected to retain their positions. The most vulnerable is the Maori Party's Tariana Turia, but with just a 10% probability of being replaced, down from 12% last week and 13% the week before.
Act Leader Rodney Hide has a 69% probability of retaining Epsom for his party (steady compared with last week) and UnitedFuture Leader Peter Dunne a 55% probability of being re-elected in Ohariu (up from 53% last week).
Winston Peters is not expected to be elected to Parliament, with just a 26% probability he will be back, down from 28% last week. There is a 20% probability Mr Peters will stand in the Epsom electorate, down from 28% last week.
There is an 87% probability Mr Harawira will win Te Tai Tokerau as an independent or for a party other than the Maori Party, down from 89% last week. Labour is expected to retain Ikaroa-Rawhiti (55% probability, steady compared with last week) and its challenger in Te Tai Tonga, Rino Tirikatene, continues to have a 50% probability of defeating the Maori Party incumbent Rahui Katene, who continues to have a 48% probability of retaining the seat, steady compared with last week.
The probability that the new left-wing party will be formed involving at least two of Mr Harawira, Mr McCarten and Ms Bradford has now reached 53%, up from 47% last week and 34% the week before. The probability of a new right-wing party involving former National Party leader and Reserve Bank Governor Don Brash continues to slide and is now down to 13%, from 14% last week and 15% the week before.
Forecast party vote shares are: National 46.5% (steady compared with last week), Labour 32.3% (up from 31.9% last week), the Greens 7.3% (up from 7.0% last week), New Zealand First 3.6% (up from 3.2% last week), Act 3.5% (down from 4.0% last week), UnitedFuture 2.2% (up from 2.1% last week, 1.7% the week before and 1.5% three weeks ago) and the Maori Party 2.1% (up from 2.0% last week). All others are 2.4%.
Based on this data, and an assumption that the new left-wing party receives 2% of the vote, the market is forecasting the following Parliament: National 58 MPs, Labour 40 MPs, Greens 9 MPs, Act 4 MPs, the Maori Party 3 MPs, UnitedFuture 3 MPs and the new left-wing party 3 MPs. There would be 120 MPs, requiring a government to have the support of 61 MPs on confidence and supply. National's Mr Key could govern with the support of one of Act, UnitedFuture or the Maori Party.
Were the new left-wing party not to be formed, or were it to achieve a negligible share of the vote, Parliament would be as follows: National 60 MPs, Labour 41 MPs, Greens 9 MPs, Act 4 MPs, the Maori Party 3 MPs, UnitedFuture 3 MPs and Mr Harawira. There would be 121 MPs, requiring a government to have the support of 61 MPs on confidence and supply. Mr Key could govern with the support of one of Act, UnitedFuture or the Maori Party.
The result in the most marginal Maori electorate, Te Tai Tonga, does not affect the overall political situation.
There continues to be no politically plausible combination that would allow a Labour-led government to be formed, and the probability there will be a National Party prime minister after the election remains steady at 83%.
In electorates for which bundles of stocks were launched last week, there is a 95% probability that Labour's Louisa Wall will hold Manurewa for her party, a 75% probability National's Peseta Sam Lotu-Iiga will retain Maungakiekie, a 92% probability a National candidate will retain Rodney for the party, and an 87% probability National's Jacqui Dean will hold Waitaki.
There is a 72% probability National's candidate in Rodney will be Scott Simpson and a 13% probability it will be Brent Robinson.
Looking at marginal seats other than Ikaroa-Rawhiti, Ohariu and Te Tai Tonga mentioned above, electorates where the predicted winner has less than 65% probability of winning are: New Plymouth (62% probability of being won by Labour's Andrew Little from National's Jonathan Young, steady compared with last week); Otaki (65% probability of being retained by National's Nathan Guy over Labour's Darren Hughes, up from 63% last week); Waitakere (62% probability of being won by National's Paula Bennett over Labour's Carmel Sepuloni, steady compared with last week); and West Coast-Tasman (53% probability of being retained by National's Chris Auchinvole over Labour's Damien O'Connor, steady compared with last week).
There is an 80% probability voters will elect to retain the MMP voting system in the referendum to be held on election day, steady compared with last week.
Following last week's announcement by Justice Minister Simon Power that he will not stand for re-election, there is a 47% probability the next Justice Minister will be Judith Collins, a 22% probability it will be Christopher Finlayson and a 17% probability it will be Simon Bridges.
iPredict accurately forecast the result of this weekend's Botany byelection, with the probability of the National candidate winning never falling below 95%.
iPredict will be providing full election coverage this year, including of every electorate race in the country. Bundles of contracts for every electorate will be launched progressively through to the end of March. Contract bundles will be launched at 1.00pm today for the Botany, Kaikoura, Port Hills and Selwyn electorates.
In addition, contracts will be launched at 3.00 pm today asking what percentage of the party vote will be won by the New Citizen Party (see www.ncp.org.nz), Reform New Zealand (see www.reform.org.nz) and a party for which Mr Harawira stands in Te Tai Tokerau.
iPredict is owned by Viclink, the commercial arm of Victoria University of Wellington. Details on the company and its stocks can be found at www.ipredict.co.nz
The weekly political snapshot is taken at a random time each week to avoid market manipulation by political parties or activists. This week's was taken at 9.38 am today.
ENDS