The Victorian economy was hit hardest by the COVID-19 pandemic due to the city’s extended, hard 112-day lockdown period which effectively shut down many businesses and forced the closure of virtually all office workplaces in the second half of 2020.

As a result of the enduring a second wave of the pandemic, the Victorian economy contracted by 6.1% over 2020, compared to -2.8% for the national economy. The impact to employment growth was particularly noticeable, the state’s -2.7% employment growth the lowest of all states.

2021 Forecast Economic State Growth

With the state’s strict lockdown proving successful at halting the spread of the virus, Victoria experienced a strong rebound in the December 2020 quarter. Victoria’s state final demand rose by 6.8% in the December 2020 quarter, led by a strong rebound in consumer spending. Despite being impacted the most by COVID, moving forwards Victoria’s economy is expected to recover strongly. The Victorian economy is forecast to grow 5.3% this year, outstripping an expected 4.7% growth in Queensland and 4.2% in NSW. Beyond 2021, between 2022 and 2025, Victoria’s economy is projected to grow by over 3.0% each year, which is above the forecasts for Australia’s other states with the exception of Western Australia.

Having lost approximately 240,000 jobs at the height of the pandemic, a recovery in the labour market is also underway. After a substantial fall in employment between March and September 2020, employment increased by 236,000 people between September and February 2021.

The unemployment rate has also declined, to be 5.6% in February 2021 compared with a peak of 7.5% in June 2020, although it remains well above pre-coronavirus levels. Looking ahead, Victoria’s unemployment is forecast to trend down to 5.1% in 2024/2025.

Victoria’s population growth, a major driver of the state’s economy and property sector is expected to remain very low, at 0.2% in the year to June 2021, and increase to only 0.4% in 2021/22 and 1.1% in 2022/23.

In response to the bushfires of early 2020 along with the health and the economic hardship caused by COVID-19, the 2020/21 Victorian state budget included $90 billion in output initiatives (a 21% increase on what was budgeted for 2019/20) and $19.8 billion in capital investment (the largest capital program in Victoria’s history). The Government’s major infrastructure projects include the Metro Tunnel, removing 75 level crossings across metropolitan Melbourne and Suburban Roads Upgrade.

Due to the increased spending and reduced revenue, the state’s net debt is forecast to reach $86.7 billion in 2020/21 (19.5% of GSP) and grow to $154.8 billion in 2023/24 (28.9% of GSP).

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