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iPredict Election Update #35

Fuseworks Media
Fuseworks Media

There is an expectation that the OCR will increase earlier than previously indicated after the release of inflation data this week, according to the latest snapshot from New Zealand's prediction market, iPredict. Consequently, there is an increased likelihood that mortgage rates will reach at least 6.00% before the end of the year. Unemployment is expected to continue to improve from the current rate of 6.6% and GDP growth forecasts have also improved marginally. In politics, New Zealand First has again reached MMP's 5% threshold, although its hold on this is tenuous, with the market indicating only a 22% probability that Winston Peters will return to Parliament. Taking into account New Zealand First's current share of the party vote, John Key is still strongly favoured to remain Prime Minister, and would be able to govern with the support of the Act Party and one of the UnitedFuture or Maori parties.

Economic Context Expectations for GDP growth have marginally improved following last week's announcement of GDP for March.

Growth over the next four quarters is expected to be 0.6% for the June quarter (steady), 0.8% for the September quarter (up from 0.7% last week), 0.7% for the December quarter (steady) and 0.6% for the March 2012 quarter.

Forecast unemployment has also improved. Unemployment is expected to be 6.4% in the June 2011 quarter (down from 6.6% last week), 6.4% in the September 2011 quarter (steady), 6.1% in the December 2011 quarter (down from 6.2% last week) and 6.2% in the March 2012 quarter (down from 6.3% last week). Inflation expectations have increased following this week's announcement of an annual inflation rate of 5.3% for the June quarter. Annual inflation is expected to be 5.0% in the September 2011 quarter (up from 4.7% last week), 2.9% in the December 2011 quarter (up from 2.6% last week) and 2.6% in the March 2012 quarter (down from 2.7% last week). 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 27% (down from 28% last week), the probability it will exceed $2.40 per litre is 12% (down from 13% last week); and the probability it will go above $2.50 per litre is 10% (steady). The market now expects Reserve Bank Governor Alan Bollard to increase the OCR earlier than previously indicated.

The OCR is predicted to remain at 2.50% until October when there will be an increase to 2.75%. It will remain at 2.75% through to January 2012, when it is expected to rise to 3.00%, and then to 3.25% in March 2012.

The expected 90-day bank bill rate for 1 September 2011 is 2.82% (up from 2.76% last week) and for 1 December 2011 is 2.96% (up from 2.90% last week).

There is an 84% probability that average floating-rate mortgages will reach 6.00% by the end of the year, up from a 74% probability last week, but just a 20% probability that they will reach 6.50% in 2011, up from 16% last week. The market is indicating a Current Account deficit of 5.04% of GDP for the year to June 2011 (steady compared with last week). 4.57% of GDP for the year to September 2011 (up from 4.51% last week), and 4.26% of GDP for the year to December 2011 (up from 3.24% last week).

Parties & Personnel All current leaders of parliamentary parties have at least an 88% probability of remaining in their positions until then. The most vulnerable is Labour Party leader Phil Goff, with a 12% probability of being replaced prior to the election (up from 9% last week). Key Electorate Contests Act has a slightly weakened position in Epsom this week with an 86% probability (down from 87% 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 a 72% probability of being re-elected (down from 73% last week)

The market appears to be in two minds about New Zealand First. On one hand, it has again reached MMP's 5% threshold this week (compared with 4.8% last week), but the market also predicts that party leader Winston Peters has only a 22% probability of returning to Parliament (down from 23% last week). Expectations that Mana Party leader Hone Harawira will retain the Te Tai Tokerau seat in the General Election have remained steady at 81%.

Maori Party Co-Leader Pita Sharples is expected to retain Tamaki-Makaurau (65%, down from 66% last week), Co-

Leader Tariana Turia is expected to retain Te Tai Hauauru (80%, steady), and Te Ururoa Flavell is expected to retain Waiariki (72%, up from 66% last week).

For the Labour Party, Nanaia Mahuta is expected to retain Hauraki-Waikato (76%, steady) and Labour's position in Ikaroa-Rawhiti (currently Parekura Horomira's seat) has remained steady at 66%. Te Tai Tonga remains forecast to change hands, with a 74% probability it will be won by Labour's Rino Tirikatene from the Maori Party's Rahui Katene (steady compared with last week). In marginal electorates other than those mentioned above, the probability National's Jonathan Young will retain New Plymouth is steady at 66%. There is a 77% probability that National's Nikki Kaye will retain Auckland Central (up from 76% last week). National's Paula Bennett remains only marginally favoured to retain Waitakere (52%, down from 53% last week) and Labour's Damien O'Connor is expected to win back West Coast-Tasman for Labour (57%, steady).

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 decreased slightly this week, while Labour's forecast vote share has remained steady. Forecast party vote shares are now: National 44.0% (down from 44.5% last week), Labour 31.4% (steady), the Greens 7.0% (steady), New Zealand First 5.0% (up from 4.8% last week), Act 4.5% (down from 4.7% last week), UnitedFuture 2.2% (up from 2.1% last week), the Maori Party 2.0% (up from 1.8% last week), the Mana Party 1.8% (steady), the New Citizen Party 0.4% (steady) and the proposed Reform New Zealand Party 0% (steady). Based on this data, and the electorate results above, Parliament would be as follows: National 54 MPs, Labour 38 MPs, the Greens 9 MPs, Act 6 MPs, New Zealand First 6 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 could govern with the support of the Act Party and either UnitedFuture or the Maori Party. Given New Zealand First's proximity to MMP's 5% threshold, iPredict has also analysed what might happen should New Zealand First only win 4.9% of the vote. Under this scenario, Parliament would be as follows: National 57 MPs, Labour 40 MPs, the Greens 9 MPs, Act 6 MPs, the Maori Party and UnitedFuture 3 MPs each and the Mana party 2 MPs. There would be 120 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 UnitedFuture and the Maori Party. Overall the market continues to indicate an 88% probability there will be a National Prime Minister after the election (down from 89% 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 77%, down from 78% last week. iPredict is owned by Victoria University of Wellington. Details on the company and its stocks can be found at 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 8:38 am today.

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