Victoria economic outlook August 2024

Demand has cooled in Victoria since post-pandemic highs, with the state sitting second last behind Tasmania on demand for goods and services in the state’s economy, CEDA Economist Liam Dillon told a CEDA trustee event in Melbourne last week.

“The situation in Victoria has deteriorated since its highs, much like many of the economies throughout Australia,” Mr Dillon said.

This is also having an impact on the state’s unemployment rate, which was the highest in the nation at 4.6 per cent in July.

“When we look at the recruitment and vacancy picture, the story here is that this is subdued and has come down significantly ,” Mr Dillon said.

Nationally, retail activity has slowed, with the latest Australian Retail Association Small Retail Index finding that 51 per cent of small- to medium-sized retailers increased prices in the past six months, while 37 per cent reduced their headcount.

“The subdued activity has been a tale in Victoria as well,” Mr Dillon said.

Melbourne is retaining its reputation as the foodie capital of Australia, despite these pressures.

“When we look at where that activity is coming from in Victoria, we see that the spending on cafes, restaurants, takeaway, food and food retailing has shown stronger levels of growth relative to goods sectors – clothes, department stores and household goods,” Mr Dillon said.

Federally, the level of demand driven by government actions has been stronger than expected and caused the outlook for GDP to be upgraded for 2025.

“In Victoria, what we've seen is the latest estimate of government consumption was around 23.3 per cent of GSP,” Mr Dillon said.

He said this represented a significant component of overall demand, which would potentially raise inflationary pressures.

“When we look at Melbourne dwelling commencements and completions, unfortunately, that's not really moving in the direction that we would want to see,” Mr Dillon said.

“One interesting point that was mentioned in the Reserve Bank’s Statement on Monetary Policy was that for high-density projects, the trades that are needed for those projects actually compete with significant infrastructure builds.

“There's potentially a challenge there for governments with big infrastructure ambitions crowding out progress in the housing space, which we know is driving inflation.”

Housing was one of the biggest contributors to the June quarter inflation figures.

“Housing price increases came in at 1.1 per cent for the quarter, with rental price increases going up by 7.3 per cent [for the year],” Mr Dillon said.

“While Melbourne [rental price increases] didn't do quite as badly as some of the other capital cities, we would still want to see some of those persistent challenges for inflation being addressed.”