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iPredict Election Update #31

24 June 2011

Key Points:
* Harawira marginally ahead of Davis in the Te Tai Tokerau by-election, which is looking to be a tight race
* John Key's National Party strengthens its position and could govern with one of ACT, Maori Party or UnitedFuture
* Current account forecasts deteriorate but recession fears continue to ease
* OCR to stay at 2.5% all year
* Labour's Parekura Horomia, and Mana's Hone Harawira have improved their hold for the General Election, while Act's Epsom candidate has lost ground

Hone Harawira is favoured to win the Te Tai Tokerau by-election, but his vote share will be only 1% ahead of Labour's Kelvin Davis, this week's snapshot from New Zealand's prediction market, iPredict suggests. John Key continues to be strongly favoured to remain Prime Minister after this year's General Election, and the National Party's forecast party vote has improved on last week. Economic forecasts suggest a decrease in the probability of a recession, but a slight weakening in the pre-election unemployment and inflation figures. Current account forecasts have all deteriorated. The OCR is now forecast to remain at 2.5% all year.

Economic Context

The likelihood of a recession before the end of the year has reduced further, with less than a 15% probability of a recession for each of the next three quarters. The probability the economy will be in a recession in the June quarter is 9% (down from 10% the last two weeks), the September quarter 12% (down from 14% last week and 13% the week before) and the December quarter 14% (steady compared with last week and 13% the week before).

Expectations for growth in the yet-to-be-reported March 2011 quarter have increased to 0.2% (from 0% last week). However medium-term growth forecasts over the following four quarters remain largely unchanged (0.5% for the June 2011 quarter, 0.7% for the September 2011 quarter, 0.8% for the December 2011 quarter) except for the March 2012 quarter at 0.7% (up from 0.6% last week)

Forecast unemployment has worsened slightly in the short-term. Unemployment is now expected to be 6.8% in the June 2011 quarter (up from 6.7% last week), 6.4% for the September 2011 quarter (steady), 6.3% in the December 2011 quarter (steady) and 6.4% for the March 2012 quarter (steady).

Inflation expectations have also increased marginally in the last week. Annual inflation is expected to be 5.2% in the June 2011 quarter (up from 5.1% last week), 4.7% for the September 2011 quarter (steady), 2.6% for the December 2011 quarter (steady) and 2.7% in the March 2012 quarter (steady).

The market continues to indicate strongly that petrol prices will be capped at a maximum price of $2.30 this year. The probability that unleaded petrol will exceed $2.30 per litre in 2011 is 29% (down from 33% last week), the probability it will exceed $2.40 per litre is 13% (down from 14% last week), and the probability it will go above $2.50 per litre is 11% (steady).

The market now expects Reserve Bank Governor Alan Bollard to leave the OCR at 2.50% in December 2011, rather than increase it by 25 basis points, as last week's data suggested. It is expected that the OCR will increase to 2.75% in January 2012, and again to 3.00% in March 2012.

The expected 90-day bank bill rate on 1 September 2011 is 2.67% (steady) and for 1 December 2011 is 2.86% (down from 2.87% last week).

There is a 70% probability that average floating-rate mortgages will reach 6.00% by the end of the year, down from an 85% probability last week, but just a 15% probability that they will reach 6.50% in 2011, down from 18% last week.

Statistics New Zealand this week released Current Account figures for the year to March 2011, with a deficit of $8.3 billion recorded. With the March GDP figure not published until 7 July, the market is predicting the Current Account deficit for the year to March 2011 will be 5.03% of GDP, down from a surplus of 1.09% of GDP as was predicted last week. The market has revised down its expectations for the Current Account for the rest of the year, and is now predicting a deficit of 4.98% of GDP for the year ending June 2011 (a deterioration from a surplus of 1.08% of GDP last week), 4.49% of GDP for the year ending September 2011 (a deterioration from a deficit of 0.6% last week), and 3.32% of GDP for the year ending December 2011 (a deterioration from 1.54% last week).

There is now just a 0.4% probability that Fitch Ratings will announce a downgrade of New Zealand's long term currency rating before 1 July (down from 2.5% last week).

Election Date, Parties & Personnel

The probability the election will be held on Saturday 26 November is 96%, up from 95% last week. All current leaders of parliamentary parties have at least a 91% probability of remaining in their positions until then. The most vulnerable is Maori Party Co-Leader Tariana Turia, but with just a 9% probability of being replaced prior to the election.

Key Electorate Contests

Act lost some ground in Epsom this week, with a 79% probability (down from 86% last week) that the seat will be won by a candidate other than a National candidate or incumbent Act MP Rodney Hide.

In Ohariu, United Future's Peter Dunne has strengthened his position, with a 69% chance of being re-elected (up from 65% last week). Labour's Charles Chauvel is now second favoured at 16%, ahead of National MP Katrina Shanks, who has a 13% probability of winning the electorate.

The probability Winston Peters will be returned to Parliament remains unchanged at 26%, while his party has gained ground, with the market expecting it to receive 4.7% of the party vote (up from 4.6% last week).

Vote share contracts were launched this week for tomorrow's Te Tai Tokerau by-election, and the market is predicting an extremely tight race. Hone Harawira is expected to receive 41.1% of the vote, with Labour's Kelvin Davis a close second with 40.1%. The Maori Party's Solomon Tipene is expected to receive 18.0% of the vote. However, Mr Harawira's position in November's General Election has strengthened over the past week, with the market indicating he has a 70% probability of winning Te Tai Tokerau in November (up from 52% last week).

Maori Party Co-Leader Pita Sharples is expected to retain Tamaki-Makaurau (70% probability, down from 72% last week), Tariana Turia is expected to retain Te Tai Hauauru (76% probability, down from 78% last week), and Maori Party MP Te Ururoa Flavell is expected to retain Waiariki (77% probability, up from 76% last week).

For the Labour Party, Nanaia Mahuta is expected to retain Hauraki-Waikato (73% probability, down from 76% last week) and Labour's position in Ikaroa-Rawhiti (currently Parekura Horomira's seat) has strengthened (72% probability, up from 53% last week).

Te Tai Tonga remains forecast to change hands, with a 66% probability it will be won by Labour's Rino Tirikatene from the Maori Party's Rahui Katene, up from 63% last week.

In marginal electorates other than those mentioned above, the probability National's Jonathan Young will retain New Plymouth is up to 53%, from 52% last week and 57% the week before. There is a 76% probability that National's Nikki Kaye will retain Auckland Central, up from 72% last week. National's Paula Bennett remains only marginally favoured to retain Waitakere (52% probability, steady compared with last week and down from 57% the week before) and Labour's Damien O'Connor is expected to win back West Coast-Tasman for Labour (55% probability, up from 53% last week).

With no changes to forecast winners in electorate seats over the last week, National continues to be expected to win 40 electorate seats, Labour 24, the Maori Party 3, and Act, United Future and the Mana Party 1 each.

Party Vote, Election Result and Alternative Scenarios

National's forecast party vote has increased this week, while Labour's forecast vote share has declined. Forecast party vote shares are now: National 45.5% (up from 43.5% last week and 44.0% the week before), Labour 31.0% (down from 33.6% for the past two weeks), the Greens 7.3% (up from 6.8% last week), Act 4.2% (down from 4.7% last week), New Zealand First 4.7% (up from 4.6% last week) UnitedFuture 2.0% (steady), the Maori Party 1.8% (steady), the Mana Party 1.4% (down from 1.5% last week), the New Citizen Party 0.6% (steady) and the proposed Reform New Zealand Party 0% (down from 0.7% last week).

Based on this data, and the electorate results above, Parliament would be as follows: National 59 MPs, Labour 40 MPs, the Greens 9 MPs, Act 5 MPs, the Maori Party 3 MPs, UnitedFuture 3MPs and the Mana Party 2 MPs. There would be 121 MPs, requiring a government to have the support of 61 MPs on confidence and supply, so that John Key's National Party would have the numbers with the support of one of the Act Party, the Maori Party or UnitedFuture. A two-party National/Green government would also be possible.

Given New Zealand First's proximity to MMP's 5% threshold, iPredict has again analysed what might happen should that party win 5% of the vote. Under this scenario, Parliament would be as follows: National 56 MPs, Labour 38 MPs, the Greens 9 MPs, New Zealand First 6 MPs, Act 5 MPs, the Maori Party 3 MPs, and the UnitedFuture and Mana parties 2 MPs each. There would be 121 MPs, requiring a government to have the support of 61 MPs on confidence and supply. John Key's National Party would require the support of the Act Party or both of the UnitedFuture and Maori parties.
Overall, however, the market continues to indicate an 87% probability there will be a National Prime Minister after the election (steady compared with last week).

MMP Referendum and Miscellaneous

The probability New Zealanders will elect to retain the MMP voting system in the referendum to be held on Election Day is steady at 78%.

iPredict is owned by Victoria University of Wellington. Details on the company and its stocks can be found at www.ipredict.co.nz The company is providing full election coverage this year, with contract bundles for the party vote and for every electorate race in the country now available for trading, along with other contract bundles on a wide range of economic, political and social issues. 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 9:00 am today.


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