The Victorian economy has continued to grow amid ongoing global challenges of high inflation and elevated interest rates. Looking ahead, the Victorian economy is forecast to grow by 2.5% in the 12 months to June 2025. This growth is expected to be driven by stronger household consumption, as inflation eases and employment and wage growth remain firm, supporting real household incomes. GSP growth is also expected to be supported by increased public demand from expanded Commonwealth social benefits programs and infrastructure spending.

Household consumption was subdued over the past year with household budgets constrained by ongoing cost-of-living pressures due to high inflation and elevated interest rates. Over 2025, household consumption growth is forecast to pick up, supported by a rise in real household disposable income. Wage growth is expected to remain firm, alongside low unemployment, while recent income tax cuts and a further decline in inflation will also support growth in real incomes.

Following strong growth over the past three years, which has brought business investment to its highest share of overall economic activity on record, investment growth is forecast to moderate in 2025. However, business investment levels still remain above the long-run average with the investment outlook supported by a large pipeline of non-residential and engineering projects (including infrastructure work), as well as continued high private sector expenditure on digitisation projects, and renewable energy transition projects.

Victorian Economic Growth

Dwelling investment declined last year due to ongoing supply constraints in the residential construction industry. Labour shortages, especially for finishing trades like tilers, plasterers and glaziers limited the amount of construction work that firms were able to complete, although dwelling completions picked up recently. Looking ahead, dwelling investment is forecast to increase modestly alongside gradual easing in capacity constraints. However, there remains a large backlog of residential construction work in the pipeline, which is expected to support activity in the near term.

Victorian employment is forecast to grow by 2.5% in the year to June 2025, following very strong growth of 3.5% in the preceding year. The unemployment rate is expected to remain around its current level of 4.5% over the next 12 months.

Victoria’s population growth has remained strong, growing by 2.4% over the year to June 2024. Strong population growth over the past two years has been driven by overseas arrivals, particularly international students, following temporary disruptions to international student arrivals during the pandemic. Looking ahead, overall, population growth is expected to slow sharply in the year to June 2025 to 1.8%, in line with the Commonwealth Government’s policy on strengthened requirements for international students.

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