The data centre boom is propping up Victoria’s economy – and that could be a blessing or a curse

Résumé détaillé

Outside of the pandemic, growth this year will be the slowest since the global financial crisis, a rate propped up by increasingly volatile investment in data centres.

Victoria’s next state government will inherit an economy dogged by rising unemployment and slower growth that is propped up by the increasingly volatile boom in data centres.

The final budget update before the November 28 election, released on Thursday, revealed a modest improvement to the state’s operating surpluses since the last fiscal report in October because of a surprise $1.3 billion dividend from WorkSafe.

It confirmed Victoria’s economy would grow by just 1 per cent this financial year, down from 1.5 per cent predicted in the state budget in May, and will underperform budget expectations in the two following years. Economic growth is now not due to hit 2.5 per cent until 2029-30.

Outside of the pandemic, this year will be the lowest rate of growth since 2008-09, when the global financial crisis rocked world markets.

Unemployment will also be higher than expected over the next two years, sitting at 5.25 per cent compared to 4.75 per cent forecast in the budget.

“Lower population growth, as well as persistent inflation and the RBA’s monetary policy response, present headwinds for economic growth, both in Victoria and nationally, for 2026-27,” Treasury’s pre-election budget update says.

Consumer spending will be held back by rising interest rates and inflation, as well as a slowdown in population growth now that federal migration changes have begun to take effect.

But Treasury said investment in data centres was expected to “offset these headwinds”, and that business spending would provide some ballast to the economy.

“Growth will be primarily driven by data centre investment, while investment in renewable energy projects is expected to remain elevated,” the report says.

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