Victoria forecasts slower economic growth in FY27
Sydney (5 May)
Victoria’s state economy will grow by 1.5% – in real terms – over the 2026-27 financial year to 30 June, down from 1.75% in 2025-26 because of reduced net trade, forecasts from the state’s 2026-27 Budget show.
The state’s forecasts assume that West Texas Intermediate (WTI) crude oil prices will average $100/barrel (A$140/barrel) in April – June 2026 and then fall to $65/barrel by June 2027, the Department of Treasury and Finance said on 5 May.
An extended oil shock could cut Victoria’s real growth rate by 0.72% points in 2026-27, it added.
WTI crude futures traded at $104.50/barrel on 5 May, up from $67.02/barrel on 27 February. Iran closed the Strait of Hormuz on 28 February because of US-Israeli attacks, blocking crude oil exports from the Persian Gulf.
The Reserve Bank of Australia’s baseline inflation forecast released on 5 May assumes that Brent crude oil prices will peak at $100/barrel in April – June 2026, before falling to $75/barrel over the next two years. Brent crude futures traded at $113.18/barrel on 5 May, data from Trading Economics show.
Brent crude oil comes from the North Sea, while WTI crude oil comes from North America. Traders often price Persian Gulf oil using Brent crude prices.
State forecasters expect real household consumption, business investment, and public spending to contribute 1.25%, 0.75%, and 0.5% points of growth, respectively, in 2026-27. But net trade will cut growth by 0.75% of growth, forecasts show.
Victoria’s state government plans to cut its infrastructure investment spend each year until 2030, from A$21.4 billion in 2025-26 to A$15.3 billion in 2029-30. It will spend $19.4 billion on infrastructure projects in 2026-27, with a focus on train fleet expansions and school building projects, according to Victoria’s Budget.
Victoria’s planned infrastructure slowdown forms part of its post-Covid 19 plan to reduce net debt as a portion of the state’s economy. The state government expects its net debt to gross state product (GSP) to fall from 24.7% in 2025-26 go 24.4% in 2029-30, it said.
The Victorian Government also announced A$2.5 billion in cost-of-living measures in its 2026-27 Budget, partly because of the US-Israeli war in Iran.
“Donald Trump’s war in the Middle East is resulting in higher prices at the fuel pump, putting Victorians under more pressure,” Victorian Treasurer Jaclyn Symes said. “This Budget acknowledges the real challenges Victorians are facing,” Symes added.
Victoria’s planned cost of living measures include a 50% cut in public transport costs until January 2027, free public transport until the end of May, and additional funding for food banks.
By Avinash Govind