NEWS

Goldman Sachs voting model shows Samaras may confound pollsters

Goldman Sachs Group Inc. is shorting opinion pollsters.

A model devised to forecast election results on the basis of economic performance shows Greek Prime Minister Antonis Samaras has a stronger chance of re-election than suggested by surveys indicating he’ll be defeated in a January 25 vote.

What’s more, David Cameron in the U.K. and Spain’s Mariano Rajoy stand to do better at the ballot box than polls imply.

The reason is that each will benefit from recent declines in unemployment and inflation, according to London-based Goldman Sachs economist Lasse Holboell W. Nielsen, a former official in Denmark’s finance ministry.

Studying the relationship between economic developments and incumbents’ re-election prospects, Nielsen found the greatest impact is from how voters view their economy. Improving wages, slowing inflation and declining unemployment all bolster an existing government’s chances.

By contrast, he found little evidence that fiscal profligacy helps and that while overhauling labor markets may hurt prospects for a fresh term in office it does so only minimally.

The good news for incumbents as recessions become a memory is that “on average, economic conditions seem to suggest a slightly higher-than-normal government re-election probability across European elections this year,” Nielsen wrote in a report published yesterday.

His model, based on votes in developed economies during the past 25 years, suggests average economic conditions point to a 43 percent probability of governments being re-elected.

Re-Election Chances

Zeroing in on six European countries voting this year, Nielsen finds an average chance of re-election of 58 percent across Denmark, Finland, Greece, Portugal, Spain and Britain.

Just allowing for economic conditions and ignoring country-specific factors, the chances of Rajoy and Portuguese Prime Minister Pedro Passos Coelho winning re-election are much higher than the average of 43 percent, Nielsen said.

Finland’s Alexander Stubb has a lower re-election probability, while Cameron — trailing the opposition Labour party in the polls — and Denmark’s Helle Thorning-Schmidt also have above-average probabilities of success. The Greek re-election prediction is close to the 43 percent average.

By contrast, Samaras’s New Democracy party had 27 percent support in a poll released on Friday by Pulse for Action24, three percentage points behind the opposition Syriza party.

[Bloomberg]