Australia’s second-most populous state was poised to take the biggest economic hit from the COVID-19 pandemic even before a dramatic spike in cases over the past fortnight forced renewed shutdowns in large parts of Melbourne.
The latest business outlook from consultancy Deloitte Access Economics tips Victoria to suffer the biggest fall in gross state product in the 2020-21 financial year, which just began.
Deloitte predicts Victoria’s domestic economy will shrink 1.6 per cent this financial year, also leaving it with the worst economic performance in the nation this calendar year.
“The largest downturn is likely to be felt in Victoria given its current spike in cases, as well as that state’s dependence on migration and on foreign students in an age of lockdowns and closed borders,” Deloitte’s Chris Richardson said in the report.
Mr Richardson said Victoria’s economy was particularly vulnerable due to the latest wave of coronavirus cases, which would see the state cut off from the rest of the country, once the border with New South Wales closed from Wednesday.
“Victoria has had the strongest COVID restrictions across the country and now, with the prospect of a second wave returning and the reintroduction of restrictions, the state is likely to see some prolonged misery in particularly hard-hit sectors,” he noted.
Melbourne’s construction sector facing ‘severe setback’
While travel-related sectors, such as tourism and education, and hospitality will be the most immediate casualties, Mr Richardson says the medium-term effects will be felt acutely in the state’s previously booming construction sector.
“Victoria’s construction sector was already showing signs of weakness before COVID hit,” he wrote.
“With high levels of uncertainty, and an unexpected drop in population growth, construction is likely to suffer a severe setback over the coming year.
“Demand for office and apartments in Melbourne, including those projects that are halfway through, are being reconsidered as the density of Melbourne’s CBD is now less attractive across people’s daily lives.”
Mr Richardson added that one silver lining for Victoria’s construction sector was that there was a lot of planned infrastructure investment, something which would also be seen in the second-most pandemic-affected state, New South Wales.
It will particularly target transport projects in Melbourne and Sydney.
However, that investment is not expected to wholly make up for the loss of overseas arrivals.