Q1 2019 – Victorian Economic Overview

Victoria’s state final demand grew by 5.2% over 2018, the highest growth rate in seven years and the highest increase of all states. Victoria’s growth has been driven by consumer spending, public demand and business investment. Consumer spending has been a solid contributor to economic growth in recent years, underpinned by population and employment growth, low interest rates and rising household wealth. Looking ahead household consumption growth is expected to moderate in 2018/19, reflecting the impact of slowing growth in population and relatively modest wage growth.

Australian Econimic Growth_ Victoria & Australia

The contribution to economic growth from public demand has also been strong, and this is expected to continue in 2018/19. Public investment is forecast to remain at high levels, supported by the Government’s large pipeline of infrastructure spending. Government infrastructure investment is projected to average $10.6 billion a year over the next four years, more than double the average of $4.9 billion a year in the four years to 2014/15.

In addition to the State government’s infrastructure commitments, the Federal Government provided $6.2 billion in the 2019/20 budget for further infrastructure projects in Victoria, including $2.0 billion for fast rail between Geelong and Melbourne and $396 million from the Commonwealth’s Urban Congestion Fund. The fund aims to finance road projects that improve safety and get commuter and freight traffic flowing faster in “major urban areas”.

Victoria’s labour market has been strong in recent years, with solid gains in employment, record rates of labour force participation and a declining unemployment rate. Employment rose by 4.2% over the year to February 2019, its fourth year of above-average growth, supporting a decline in the unemployment rate to 4.8%. By industry, employment growth was particularly strong in construction, government and health care.

Labour market conditions are expected to remain solid, consistent with leading indicators of labour demand. Employment is forecast to rise by 2.5% in 2018/19 and by 2.0% in 2019/20. The unemployment rate is expected to average 4.75% over 2019.

Victoria’s population growth has been strong in recent years, driven by high levels of both net overseas and interstate migration. In the year to September 2018, Victoria’s population grew by 2.2%, compared to 1.6% for Australia as a whole. The increased levels of migration – interstate migration in particular – reflect Victoria’s economic performance in recent years. However, with economic conditions continuing to normalise between the mining and non-mining states, migration levels are expected to moderate with Victoria’s population forecast to grow by 2.1% in 2019.

Annual Economic Growth by State

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