Stronger economic growth, inflation predicted

Economic growth and inflation expectations are rising while National remains the odds-on favourite to win the election, according to the weekly snapshot from online prediction market iPredict.

Recession fears have eased further over the last week with the probability the economy will be in a recession in the June 2011 quarter down to 22% from 26% last week.

Negative growth continues to be expected in the March 2011 quarter but there is now a 26% probability growth will be above 0% for that quarter, up from 11% last week. Recession expectations for the September and December 2011 quarters remain steady at 14% and 12% respectively.

However, growth forecasts remain weak. Growth for each of the next five quarters to be reported is expected to be -0.2% for the March 2011 quarter (up from -0.3% last week); 0.2% for the June 2011 quarter (steady); 0.6% for the September 2011 quarter (steady); 0.7% for the December 2011 quarter; and 0.5% for the March 2012 quarter.

Unemployment forecasts are also steady. Unemployment is expected to be 6.8% in the March 2011 quarter (no change from last week); 6.7% in the June 2011 quarter (no change); 6.3% in the September 2011 quarter (no change); 6.4% in the December 2011 quarter; and 6.5% in the March 2012 quarter.

Inflation expectations are slightly up overall compared with last week. Annual inflation is expected to be 4.8% in the March 2011 quarter (up from 4.6% last week); 5.3% for the June 2011 quarter (steady); 5.0% for the September 2011 quarter (up from 4.9% last week); 3.1% for the December 2011 quarter (after the one-off GST increase comes out of the numbers); and 3.1% for the March 2012 quarter.

Big petrol price rises continue to be forecast, although the strength of expectations has fallen slightly. The probability that unleaded petrol prices will exceed $2.20 per litre in 2011 is steady at 90%, but the probability it will exceed $2.30 per litre has fallen from 60% last week to 54% this week.

The probability it will exceed $2.40 per litre has continued its slide and is now 34%, from 35% last week, 40% two weeks ago and 45% three weeks ago. The probability it will go above $2.50 per litre also continues to slide and is now 24%, from 27% last week and 33% two weeks ago.

The market continues to expect that Reserve Bank Governor Alan Bollard will leave the OCR at 2.50% for most of the year before raising it to 2.75% on 8 December.

All current leaders of parliamentary parties have at least an 83% probability of remaining in their positions until then, with the probability that Labour Leader Phil Goff will be replaced before the election having fallen back to just 17%, from 22% last week and 42% the week before.

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 is 30%, down from 34% last week. The probability that a new party will be registered involving former National Party Leader Don Brash is now down to 7%, from 11% last week, 12% two weeks ago and 16% three weeks ago.

The probability Act Leader Rodney Hide will retain Epsom for his party is up to 67%, from 63% last week and 57% two weeks ago. United Future Leader Peter Dunne has a 55% probability of being re-elected in Ohariu, down from 57% last week, but still well ahead of a National candidate (27% probability, down from 28% last week) or a Labour candidate (19% probability, up from 17% last week).

The probability Winston Peters will be returned to Parliament remains steady at 30%, as do the probabilities he will stand in Epsom (17%) or in Helensville (11%).

Based on party vote and electorate vote data, Parliament would be as follows: National 59 MPs, Labour 40 MPs, Greens 9 MPs, Act 5 MPs, the Maori Party 4 MPs, UnitedFuture 3 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 one of the Act, Maori Party or UnitedFuture parties.

However, if Act fails to get back into Parliament through the Epsom seat National would be able to govern alone.

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