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Bumper harvests in rural Victoria coupled with booming business across the regions helped keep the state’s economy afloat as the repeated lockdowns of 2020 and 2021 drove Melbourne into a sharp recession.
The Victorian economy shrank by 0.4 per cent in 2021, the first time in 30 years it has gone backward, but a new report by consultancy SGS Economics & Planning reveals that the economic hit of COVID-19 might have been much worse without the strong contribution from the regions.
The strength of regional Victoria’s economy helped temper the financial hit of COVID.Credit:James Davies
Melbourne’s economy shrank by more than 1.6 per cent, or more than $5.2 billion, to $369 billion in the 12 months to June, driven by sharp drops in employment and economic activity.
But the size of Victoria’s regional economy surged by nearly 4 per cent, or $3.7 billion, to $98 billion as the agricultural sector recovered from the devastating bushfires of 2019 and 2020, amid a record grain harvest, robust meat and livestock prices and strong yields of fruit, nuts, vegetables and dairy.
The state government’s pandemic response pumped money to regional health, aged care and the broader public sector, while demand for out-of-town property boosted the real estate industry.
SGS senior associate partner Marcia Keegan told The Age on Tuesday that a large slice – 1.5 percentage points – of the regions’ 3.9 per cent growth was tied to the bumper harvests, but even that strong performance had not been enough to stave off recession in the face of Melbourne’s “horrible” lockdowns.
“Regional Victoria did cushion the entire state from that economic decline,” Dr Keegan said.
“But even so, because Melbourne is such a large proportion of the Victorian economy, even that huge growth in agriculture and other industries and regional Victoria wasn’t enough to save the entire state from recession.”
Dr Keegan said it was too early to say, despite some “green shoots of recovery”, whether Melbourne would end 2022 in recession.
“We’ll have to wait and see what happens with this Omicron variant,” she said.
State Treasurer Tim Pallas said it was fantastic regional Victoria had bounced back and he was confident Melbourne was in a position to do the same.
“We’re backing the recovery of the CBD with support for events, hospitality operators … and outdoor trading,” Mr Pallas said.
“Our pipeline of projects in Melbourne will also continue to help the city’s economy – including investment in the Metro Tunnel, starting the Suburban Rail Loop, getting on with the Airport Rail and duplicating and extending train lines to growing suburbs.”
Victorian Farmers Federation president Emma Germano said high livestock and meat prices had also played a role in the economic success of the regions and that the good times for agriculture looked set to last.
“We’re having another decent grain harvest, commodity prices are looking like they will be maintained at the level that they’re at, but what we have to be really conscious of is supply chain vulnerabilities,” Ms Germano said.
Melbourne lord mayor Sally Capp said she was confident that the city was well on its way to recapturing its economic edge.
“We have turned the corner and are roaring back to life,” Cr Capp said.
“All the data is on a positive trajectory and points to the CBD’s bounceback to a pre-pandemic level of output – even earlier than Deloitte’s forecast of 2024.”
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