Victoria's economy grew by 3.3 per cent in the 2015–16 financial year1, higher than compared with the decade average, and Victoria has consistently recorded the nation's strongest annual population growth.
Victoria's world-class education institutions, culturally diverse population, strong technological capability, positive business environment, quality infrastructure, productive land, significant natural resources and environmental heritage make it among the best places in the world to live. It is well-placed to deal with challenges now and into the future, and to seize emerging opportunities.
Increasing productivity and employment growth are helping to expand Victoria's economy at a rate faster than population growth. The Victorian Budget Update forecast Victoria's gross state product growth to grow above trend at three per cent in 2016–17. Most recently, business and housing investment, along with international education and tourism exports – supported by low interest rates and a weaker Australian dollar – have driven growth. Gross state product per capita increased 1.4 per cent in the 2015–16 financial year, a significant improvement on the period 2012–14 when per capita growth was negative.
Labour productivity continues to grow in Victoria, although the rate has been slowing for several decades. Labour productivity in the state is growing at a slower rate than Australia-wide average.
In recent years, population growth has underpinned Victoria's economic strength. Victoria has Australia's highest population growth and the nation's fastest-growing capital city.
Victoria's labour market is improving. Unemployment has fallen from a peak of 6.8 per cent in mid-2014 to 6.0 per cent in December 2016. Since November 2014, employment has increased by over 199,000 people, and just over 120,000 new full-time jobs have been created.2 Over two-thirds of job growth in Victoria over the past 15 years (2000 to 2015) has come from five sectors3:
- health care and social assistance
- professional, scientific and technical services
- education and training
- retail trade.
Part-time employment is growing strongly as businesses seek a more flexible workforce, and more people look for work, increasing the participation rate.
Challenges we face
Not all regions and segments of the Victorian community are sharing equally in the economic growth the state enjoys. In recent decades, Victoria's economy has evolved from a reliance on manufacturing to an increasing dependence on the services sector. Global competition, the increasing role of international supply chains and new technologies and processes continue to weigh on the state's manufacturing sector.
Victoria's fastest growing industries – finance and professional services – are concentrated in Melbourne. In contrast, population growth is occurring in outer and middle suburbs, often in those areas where socio-economic disadvantage is already high. This economic and demographic transition is creating pockets of disadvantage in some outer Melbourne suburbs and leaving young people, Aboriginal Victorians and disabled people at risk of being left behind.
Climate change is exacerbating the frequency and severity of natural disasters such as bushfires, floods and biosecurity incidents. Drought has affected much of Victoria since June 2014, particularly in the north west of the state. Climate change is weakening the resilience of the state's natural environment and the ecosystem that underpins the natural resources sector.
Victoria's economy is becoming more globally connected and our future growth is increasingly dependent on accessing international markets and attracting productive investment.
In 2015-16, Victoria exported $42.8 billion of goods and services. Of this, there was $16.7 billion in services exports and $26.2 billion in goods exports.4 Around half of our merchandise exports went to China (including Hong Kong), India, South Korea, Japan and ASEAN countries.5
China, India and other Asian countries are strong contributors to growth in our education and visitor economy services sectors. Asia's rapidly growing middle class provides an opportunity to grow our exports in Asia in both goods and services.
Declining global commodity prices have weakened the Australian mining sector and mining-related investments, which has seen a shift in investment to non-resource sectors where Victoria is well-placed to take advantage. The weakened Australian dollar has also increased Victoria's competitiveness as an international business, international education, investment and tourism destination.
Changes in the nature of work
The forces shaping the Victorian economy are changing the nature of work. Businesses are demanding a workforce with different skills and capabilities. More people are working from home and part-time employment is growing strongly. Career paths are less linear and there are more opportunities for freelancers and contractors. Automation and advanced robotics have meant a shift away from routine tasks and low-skilled jobs toward an increasing demand for better educated, higher-skilled and more resilient and agile employees.
Victorians must upskill and become more innovative to adapt to these changes: science, technology, engineering and maths (STEM) skills, digital literacy and numeracy are increasingly important. So too are broader analytical capabilities, interpersonal skills, and the aptitudes and mindsets needed to work in a more dynamic labour market.
1 Source: ABS Cat No. 5220.0 Australian National Accounts: State Accounts (chain volume measure).
2 Source: ABS Cat No. 6202.0 Labour Force, Australia, Table 5 (seasonally adjusted).
3 Source: ABS Cat No. 6291.0.55.003 Labour Force, Australia, Detailed, Quarterly.
4 Source: ABS Cat. No. 5302.0 – Balance of Payments and International Investment Position, Australia, Table 21. Goods and Services Credits by State on a Balance of Payments Basis – Quarter (nominal terms, seasonally adjusted).
5 Source: ABS Cat. No. 5368.0 – International Trade in Goods and Services, Australia, Table 36b. Merchandise Exports, State of Origin Victoria, by Country and Country Groups, FOB Value.
Page last updated: 7 February 2017