Understanding Victoria’s Economy - Beyond the Headlines

Media coverage in 2024 has highlighted rising unemployment, a slowdown in new business startups, increasing state debt, and a stagnating property market. These factors might suggest that one of the world’s most livable cities is on the decline. However, a deeper analysis of these issues paints a more nuanced picture. What happens when we peel back the layers of these headline stories? Let’s explore the reality behind the data and the context that drives it.

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Employment:

While unemployment has risen slightly, it stabilized in the latter half of 2024, reflecting the delayed effects of interest rate increases from the past two years. Moreover, in a historical context, unemployment remains at a relatively low level, far from the peaks of the 1990s.

More importantly, Victoria's labor force continues to expand, with participation rates reaching record highs. In September alone, the labor force grew by nearly 20,000 people in Victoria. Between January 2023 and October 2024, an impressive 268,000 new jobs were created in the state, accounting for 37% of the nation’s total employment growth during that period.

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Business activity and resilience

While Victorian insolvencies have risen, this trend is consistent with the national picture, where insolvencies have increased more sharply.  

In terms of entrepreneurship, while Victoria has seen a relative dip in new startups per 1,000 businesses compared to other states, the overall number of businesses in the state has grown by over 31,000—or 3%—since the start of the year.

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The most affordable major city in the country.

Victoria's housing market is undergoing a notable shift, with house prices dropping throughout 2024.

However, this decline brings a silver lining. Melbourne has now the most affordable prices of all major states in Australia, with Perth, Adelaide, Brisbane and Sydney all surpassing the medium house prices. For the first time in a long time, Melbourne is a buyers market with opportunity for value.  

Another strong feature is the booming rental market. Over the past 12 months, median rents in Victoria have risen by 13.3%, including a 4.3% increase in the most recent quarter. While the March quarter marked a slight reduction in rental stock—the first on record

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Building for the future has a cost.

While there’s no denying that Victoria’s economy has slowed, this is consistent with broader national trends and the Reserve Bank’s strategy of interest rate increases to cool the economy. However, unlike the financial crisis of the early 1990s, when debt surged due to a severe recession, today’s rise in state debt is driven by strategic investments in infrastructure—an area where Victoria is seeing historic levels of activity.

Infrastructure spending in Victoria is now approaching $25 billion annually, nearly five times the amount from a decade ago. These investments are creating thousands of jobs and, in the near future, will bring vital projects online, further strengthening the state’s economic potential and growth prospects.

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