National could govern alone after Nov 26 election if Act, United Future don't re-enter Parliament, iPredict says

Here is this week's iPredict election update:

KEY POINTS:

* John Key to remain Prime Minister and govern alone if Act and UnitedFuture leave Parliament
* Recession fears rise slightly but unemployment expected to fall marginally
* Annual inflation expected to peak at 5.3% in June quarter
* OCR expected to remain at 2.5% until after election, and interest rates to stay low
* Labour to win West Coast-Tasman
* Mark Mitchell to be National candidate for Rodney

COMMENTARY:

John Key would remain Prime Minister and be able to govern alone even if both the Act and UnitedFuture parties failed to be returned to Parliament at the next General Election, this week's snapshot from New Zealand's prediction market, iPredict, and associated analysis suggests.  If Act and UnitedFuture were returned to Parliament, as the market continues to forecast they will be, Mr Key would be able to govern with the support of Act or the Maori Party.

Economic Context

Recession fears have increased slightly over the last week.  The market continues to strongly believe there will be negative growth in the March 2011 quarter, with just an 11% probability Statistics New Zealand will report growth above 0% for that quarter, down from 12% last week.  Nevertheless, a recession is still not expected, with the market indicating just a 26% probability the economy will be in recession in the June 2011 quarter, although this is up from 22% last week.  Recession expectations for the September and December 2011 quarters remain steady at 14% and 12% respectively.

Growth forecasts for each of the next three quarters to be reported are -0.3% (March quarter), 0.2% (June quarter) and 0.6% (September quarter).  Contracts for GDP growth over the next three quarters will be launched this week.

Unemployment in each of the next three quarters is expected to be 6.8% (March quarter), 6.7% (June quarter) and 6.3% (September quarter).

Inflation expectations are largely unchanged compared with last week.  Annual inflation continues to be expected to be 4.6% for the March quarter and 5.3% for the June quarter.  For the September quarter, annual inflation is now expected to be 4.9%, down from 5.0% last week.

Big petrol price rises continue to be forecast, with the probability that unleaded petrol prices will exceed $2.20 per litre in 2011 and the probability it will exceed $2.30 per litre both remaining steady at 90% and 60% respectively.  However, the probability it will exceed $2.40 per litre continues to fall from 45% two weeks ago, to 40% last week, to 35% this week.  The probability it will go above $2.50 per litre is also down, to 27% from 33% last week.

In the context of these economic forecasts, the market has low expectations that Reserve Bank Governor Alan Bollard will increase the OCR from 2.50% before December.  There is a 98% probability he will leave it unchanged on 28 April (up from 95% last week); a 93% probability he will leave it unchanged on 9 June (steady); an 86% probability he will leave it unchanged on 28 July (down from 87% last week); a 66% probability he will leave it unchanged on 15 September (down from 74% last week); and a 69% probability he will leave it unchanged on 27 October.  There is a 48% probability he will then increase the OCR to 2.75% on 8 December, following the General Election.

Expected yields for 90-day bank bills are largely unchanged.  Last week, the expected 90-day rate on 1 June 2011 was 2.62% while this week it is 2.58%.  The expected 90-day rate on 1 September 2011 was last week 2.68% and is now 2.76%, while the expected rate on 1 December 2011 was 2.91% last week and is 2.92% this week.

Average floating-rate mortgages are ever-more-strongly expected to stay low.  The probability they will reach 6.50% in 2011, from the 6.39% reported by the Reserve Bank for February 2011, is now 16%, down from 17% last week.

Election Date, Parties & Personnel

The market continues to indicate a 97% probability that the election will be held on Saturday 26 November and all current leaders of parliamentary parties have at least a 78% probability of remaining in their positions until then.

The probability that Labour Leader Phil Goff will be replaced before the election has fallen back to 22% from 42% last week.  The market believes there is a 65% probability that the Leader of the Labour Party on 1 June 2012 will be either Mr Goff or a person other than David Cunliffe, Maryan Street or Trevor Mallard, down from 70% last week.  There is a 33% probability Mr Cunliffe will be leader on that date, up from 25% last week.

The probability of a new party being registered prior to the election involving at least two of Independent MP Hone Harawira, Unite National Secretary Matt McCarten and former Green MP Sue Bradford has reversed its downwards trend over the last month, and is now 34%, up from 26% last week.  The probability that a new party will be registered involving former National Party Leader Don Brash is down to 11%, from 12% last week and 16% the week before.

Key Electorate Contests

The probability Act Leader Rodney Hide will retain Epsom for his party is up to 63%, from 57% last week.  There is a 33% probability it will be won by a National candidate (other than Mr Hide should he stand for National), down from 39% last week.

UnitedFuture Leader Peter Dunne has a 57% probability of being re-elected in Ohariu, steady compared with last week, well ahead of a National candidate (28% probability, up from 27% last week) or a Labour candidate (17% probability, steady compared with last week).

The probability Winston Peters will be returned to Parliament has risen this week to 30%, up from 27% probability over the last three weeks.  The probability he will stand in Epsom remains 17% and the probability he will stand in Helensville against Mr Key remains 11%.

There has been little change in the Maori electorates this week.  The probability Mr Harawira will win Te Tai Tokerau as an independent or for a party other than the Maori Party remains steady at 78%.  Labour continues to have a 70% probability of winning Hauraki-Waikato and a 50% probability of winning Te Tai Tonga, both steady compared with last week.  Similarly, there have been no changes in Tamaki Makaurau, Te Tai Hauauru or Waiariki which have 78%, 77% and 82% probabilities of being retained by the Maori Party respectively.  The probability the Maori Party will pick up Ikaroa-Rawhiti has risen to 52%, from 47% last week.

Other than those mentioned above, there are five seats where the projected winner has less than a 75% probability of winning.  Auckland Central has a 73% probability of being retained by National's Nikki Kaye (down from 76% last week); New Plymouth a 52% probability of being won by Labour's Andrew Little from National's Jonathan Young, (steady); Waimakariri a 73% probability of being retained by Labour's Clayton Cosgrove (steady); and Waitakere a 66% of being retained by National's Paula Bennett (up from 58% last week).

There has been a change of projected winner in West Coast-Tasman.  Last week, there was a 52% probability it would be retained by National's Chris Auchinvole over Labour's Damien O'Connor.  There is now a 50% probability that Mr O'Connor will win, up from 48% last week.  Mr Auchinvole has a 47% probability of prevailing.

In total, National is expected to win 39 electorates, Labour 24, the Maori Party 4 and Act, UnitedFuture and Mr Harawira 1 each.

Party Vote, Election Result and Alternative Scenarios

Forecast party vote shares are: National 46.5% (up from 45.5% last week), Labour 31.9% (up from 31.4% last week), the Greens 7.0% (up from 6.9% last week), New Zealand First 4.3% (down from 4.7% last week); Act 3.6% (steady), the Maori Party 1.8% (down from 2.0% last week), UnitedFuture 1.7% (down from 2.4% last week), a party around Mr Harawira 1.2% (steady), the New Citizen Party 0.7% (steady) and the proposed Reform New Zealand Party 0.5% (up from 0.4% last week).

Based on this data, and the electorate results above, Parliament would be as follows: National 59 MPs, Labour 41 MPs, Greens 9 MPs, Act 5 MPs, the Maori Party 4 MPs, UnitedFuture 2 MPs and a party around Mr Harawira 2 MPs, for a total of 122 MPs.  A government would be required to have the support of 62 MPs on confidence and supply so that National's Mr Key could govern with the support of either Act or the Maori Party.

iPredict has also looked at four alternative scenarios.

Were the Maori Party to win the most marginal electorate, Te Tai Tonga, the only difference would be that it would have 5 MPs and Parliament a total of 123 MPs and Mr Key would govern with the support of either Act or the Maori Party.

The second and third alternative scenarios deliver results which are counter-intuitive, caused by how "wasted" votes are "redistributed" among parties.

Were Act not to win Epsom, Parliament would be as follows: National 62 MPs, Labour 43 MPs, Greens 9 MPs, the Maori Party 4 MPs, UnitedFuture 2 MPs and a party around Mr Harawira 2 MPs, for a total of 122 MPs.  A government would be required to have the support of 62 MPs on confidence and supply and Mr Key could govern alone.

Similarly, were both Act to lose Epsom and UnitedFuture to lose Ohariu, Parliament would be as follows: National 63 MPs, Labour 43 MPs, Greens 10 MPs, the Maori Party 4 MPs and a party around Mr Harawira 2 MPs, for a total of 122 MPs.  A government would be required to have the support of 62 MPs on confidence and supply and, again, Mr Key could govern alone.

Finally, iPredict has analysed the result were both Act and UnitedFuture to leave Parliament while the New Zealand First Party secured MMP's 5% threshold.  Under this scenario, Parliament would be as follows: National 60 MPs, Labour 41 MPs, the Greens 9 MPs, New Zealand First 6 MPs, the Maori Party 4 MPs and a party around Mr Harawira 2 MPs, for a total of 122 MPs.  In this case, Mr Key would require the support of the Maori Party to govern while Mr Goff could govern with the support of the Greens, New Zealand First, the Maori Party and Mr Harawira's party.

Overall, the market indicates an 83% probability there will be a National Prime Minister after the election, steady compared with last week.

Miscellaneous

There has been a significant change in the forecast winner of the National Party's selection process in Rodney, which was scrapped earlier in the year and started again.  At the time the snapshot was taken, Mark Mitchell was favoured with 63% probability, up from 23% last week and 3% the week before.  The previous favourite, Brent Robinson, had just a 22% probability of being selected, down from 57% last week and 50% the week before.  The probability Scott Simpson would be selected had plunged to 3%, from 22% last week and 43% the week before.

The probability New Zealanders will elect to retain the MMP voting system in the referendum to be held on Election Day has fallen to 77%, from 80% over recent weeks.

iPredict 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.

The company 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 7.00 am today.