Q3 2020 – Victorian Economic Overview

The coronavirus pandemic represents the biggest economic shock the world and Victoria have experienced since the Great Depression. The outbreak of COVID-19 has also led to a fall in consumer and business confidence in Victoria and across Australia.

It is projected that Victoria’s real gross state product (GSP) will fall by 5.25% in calendar year 2020 and, in the September quarter, Victoria’s unemployment rate could rise to 9% with job losses peaking at around 200,000. After peaking in September, the unemployment rate is estimated to remain high but recover to 7% by June 2021, supported by an estimated rebound of 6.25% real GSP growth in calendar year 2021.

Annual Economic Growth Victoria & Australia

Around 160,000 Victorians lost work in the June quarter, among 710,000 people Australia-wide. The official unemployment rate for Victoria is 7.1% for August 2020, and 6.8% nationally. The potential unemployment rate peak has been revised down relative to the previous update in April, largely reflecting a smaller than expected decline in employment in the June quarter.

National borders have been closed since 20 March and are still some time away from reopening. This has curtailed Victoria’s tourism and education exports. Additionally, a slowdown in the arrival of new migrants will mean lower population growth. This will affect residential construction and many parts of the economy that depend on consumer spending.

Victoria’s extended lockdowns have adversely impacted the state’s population growth. It is forecast that there will be 400,000 fewer people living in Victoria by the end of 2022 than had been expected before the pandemic hit. The state’s interstate migration projections have been downgraded for this year from an expected increase of 16,800 to a negative 1,200. Interstate migration into Victoria is not expected to be positive again until 2022/23.

Before the pandemic, Victoria’s population had been expected to grow by about 150,000 to 160,000 a year for the next three years. Now, Treasury forecasts a rise of 21,000 in 2021 and just over 50,000 the following year.

The pandemic is having significant dampening effects on government revenue streams. Property sales and dwelling prices have been and are expected to continue to be impacted both by the restrictions placed on the real estate sector and because of weaker economic conditions. This will result in lower property tax collections. In addition, payroll tax collections are negatively impacted by weakness in the Victorian labour market.

The 2020/21 Federal Budget also included $1.141 billion in new funding for a package of road and rail projects across Melbourne and regional Victoria with funding being brought forward for critical Victoria’s Big Build projects. Funding for Victorian projects includes $320 million for the Shepparton Rail Line Upgrade; $208 million for Stage 2 of the Warrnambool Rail Line Upgrade; $292 million for the Barwon Heads Road Upgrade; and $85 million to upgrade Hall Road in Cranbourne.

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