The Victorian economy is forecast to increase by 2.50% over the 12 months to June 2026, up from 1.8% recorded over the preceding year. Employment growth has been resilient, and the unemployment rate remains low by historical standards, however the growth rate is easing. Over 2025, total employment in Victoria increased by 59,300, relatively modest in comparison to recent years when the previous calendar years recorded annual employment growth of more than 100,000. Reflecting the easing employment growth, the Victorian unemployment rate continues to trend up, currently sitting at 4.6% in December 2025, compared with 4.4% a year earlier. Looking ahead, Victorian employment is forecast to grow at a lower rate of 0.5% with the unemployment rate expected to rise marginally to 4.75% in mid-2026, as growth in the workforce exceeds growth in employment.

Dwelling investment in Victoria drove much of the State’s economic activity, 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. Looking forward, 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.

Victorian Annual Employment Change

While dwelling investment grew strongly, more broadly, state business investment grew modestly, 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.

In comparison, growth in household consumption remains subdued amid ongoing cost-of-living pressures as growth in household disposable incomes did not keep pace with growth in consumer prices since inflation peaked. Overall, household consumption recorded a modest rise in total spending, with consumers focusing their spending on essential items.

Goods exports recorded solid growth over 2025, driven mainly by robust global demand for food products, especially meat. Beef exports performed particularly well as Victorian producers increased supply in response to drought conditions and high global demand.

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.

Victoria’s population grew by 1.8% over the year to June 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. While Victoria’s population continues to expand more than its 10-year average, increasing by 123,500 people, current levels have fallen from growth of 153,700 people in the previous year.

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