Victoria’s economy is forecast to grow by 2.50% over the year to June 2025, with most major components forecast to contribute to overall economic growth, with household consumption making the largest contribution.

Household consumption is forecast to grow at a solid rate, following subdued growth over the past year amid ongoing pressure on household budgets from high inflation and higher interest rates. The weakness in spending has been led by discretionary goods, including household goods and clothing, while consumption of discretionary services grew modestly over the past year, as did spending on essential items.

Higher costs to build new dwellings, higher financing costs due to increased interest rates, and subdued buyer sentiment have all weighed on demand for new dwellings. Nonetheless, there remains a significant pipeline of residential building work to be done.

Demand for new dwellings is expected to increase over the coming year, driven by population growth, an easing in interest rates and expected price growth for established dwellings. This increase in new dwelling demand, coupled with the existing pipeline of work, is forecast to support an increase in dwelling investment next year.

Vicotrian Government Infrastructure Investment

Business investment is forecast to moderate but continue growing, following very strong growth over the past three years. Investment has been supported by elevated levels of demand in the economy, which has encouraged firms to expand. Meanwhile, an easing in global supply-chain disruptions has supported increased spending on machinery and equipment.

The investment outlook is also supported by a sizeable pipeline of both non-residential and engineering construction projects. In the near term, however, elevated input costs and ongoing labour shortages may constrain investment activity.

With employment remaining at a high level relative to the size of the workforce, and economic headwinds from inflation and elevated interest rates, employment growth is forecast to ease to 1.00% over the year ahead. The unemployment rate is expected to rise modestly but remain at a low level by historical standards, increasing from 4.0% to 4.25% in mid-2025.

Population growth has recovered following the impacts of national border closures and other pandemic-related migration restrictions. Victoria’s population is expected to grow by 1.8% over the year ahead before returning to its long-term trend from mid-2026.

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