The Victorian economy performed well in 2025 to date, despite cost-of-living pressures and elevated interest rates weighing on some sectors of the economy. Employment growth has been resilient, and the unemployment rate remains low by historical standards. However, cost-of-living pressures remained elevated for some households, as growth in household disposable incomes did not keep pace with growth in consumer prices since inflation peaked in December 2022.

Victoria’s state final demand – a key indicator of economic activity – grew by 1.8% in the 12 months to June 2025 with dwelling investment recording the strongest increase, rising by 3.9% and reaching its highest level in three years. The increase in residential construction has been supported by an easing of construction labour shortages, enabling the sector to work through a backlog of projects. Looking ahead, the Victorian economy is forecast to increase to 2.50% over the next 12 months.

Public demand also contributed to growth in Victoria’s state final demand, contributed to in part by increased Commonwealth spending across various social benefits programs and infrastructure projects.

Business investment grew modestly in 2024/25, following three years of strong growth. Investment was driven by spending on intellectual property, which includes digitisation and cyber security. Engineering construction also increased, including projects related to the energy transition.

Victorian Government Infrastructure Investment

Dwelling investment is forecast to increase, supported by a further easing in industry capacity constraints and an increase in demand for new housing. Slower growth in building costs, and an anticipated increase in the price of established dwellings, are expected to make it increasingly attractive to build a new dwelling relative to purchasing an existing home. This improvement in demand for new dwellings, alongside an elevated pipeline of work to be done, supports the outlook for stronger growth in dwelling investment over the next 12 months.

The strength of the Victorian economy has supported a healthy labour market. The share of the Victorian working-age population in employment and the participation rate were both at record levels in 2024/25. In annual terms, employment grew by a strong 2.5%. The unemployment rate increased modestly, averaging 4.4% in 2024-25, but remained below the 20-year pre-pandemic average of 5.5%. Employment is forecast to grow at a lower rate of 0.50% with the unemployment rate expected to rise marginally to 4.75% in mid-2026, as growth in the workforce exceeds growth in employment.

Growth in household consumption was subdued in the 2025 financial year, and driven by a modest rise in spending on essential items amid ongoing cost-of-living pressures.

Victoria’s population grew by 1.8% over the year to March 2025, marking a moderation in growth following two years of strong increases, but remains a little above the long-term average growth rate of 1.7%. Over the past year, the moderation in population growth has been driven by an easing in net overseas migration.

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