Modelling released today shows the City of Melbourne's (CoM) economy is likely to contract by 22 per cent on pre-COVID levels this year, making it the hardest hit region in the country.
PricewaterhouseCoopers (PwC) research commissioned by the CoM estimates a $23.5 billion reduction on last year's record economic output of $104 billion, which accounted for almost a quarter of Victoria's gross state product (GSP).
A total reduction of $49 billion - or 8 per cent - is expected over five years under a scenario in line with the latest government projections, but prolonged public health measures could lead to a $110 billion fall over the period.
Under that worst case scenario considered by PwC, Victorian state-wide economic output would be $327 billion below pre-COVID projections over five years, affecting around 398,000 jobs.
The report also notes co-dependencies for the state and national economy, which have historically been driven by growth in major cities.
Overall, the CoM is expected to bear the brunt of jobs and output decline across Victoria, with the daily population in the city running at 34 per cent of 2019 daily averages.
The report also considered a scenario of a quicker and stronger recovery, under which CoM's economic output over five years would be down $41 billion with GSP down by $74 billion.
"This shows that the difference between a slower and quicker recovery over the five years is $69 billion in CoM economic output," the report stated.
"This highlights the importance of the speed and strength of recovery and cements the importance of the CoM in driving Victoria's response."
Lord Mayor Sally Capp said the city economy was booming before COVID-19, describing it as the economic powerhouse of Australia.
"The scale of the economic shock being felt across the central city is unprecedented," the Lord Mayor said.
"The modelling shows more than 22,000 jobs could be lost in our accommodation and food services sector this year alone. We can't afford to lose our world-class food, café and retail culture."
She said the new data showed Melbourne needed urgent support from the Victorian and Australian Governments to support businesses.
"We are working closely with the State and Federal governments to secure further support for businesses and investment for the city's reactivation when it is safe to do so," she said, adding her council was making a record $50 million investment in rate relief and stimulus packages to help the economy recover as quickly as possible.
A return of international students is one of the critical factors to help ensure a faster recovery, with the report highlighting how the University of Melbourne was the state's largest exporter by value last year.
"The closure of domestic and international borders has forced the deferral of thousands of international student enrolments in 2020, significantly impacting institutions like the University of Melbourne which relies on overseas student fees for 35 per cent of its income," the report stated.
"It will also impact the local economies which house these institutions, with ABS data showing for every $1 lost in university tuition fees, another $1.15 is lost in the broader economy due to student spending."
The report also emphasises inner Melbourne's historic strength in drawing tourists to the state, which received 95.5 million visitors in the year to March 2020.
"The tourism expenditure for these visitors was $31.3 billion, which amounts to spending of approximately $85.6 million per day in the State," the report stated.
"With the exception of visitors from China, the top source markets by overnight visitor spend were visitors from Victoria, New South Wales, Queensland, and South Australia, highlighting the significance of Victoria as a colourful domestic travel destination.
"The Greater Melbourne region drew 39.6 per cent of these visitors to Victoria. For international tourists, who make up only 3 per cent of visitors to Victoria but 26 per cent of tourism expenditure, Melbourne provides a gateway for arriving visitors to explore the rest of the state."
Under a scenario in line with current government projections, the City of Melbourne's accomodation, food services and retail trade is set for a 42 per cent decline in employment, compared to a 30 per cent reduction for the state.
PwC also pointed to inner Melbourne's startup economy as another strong driver of jobs growth and productivity.
"The Life Sciences and Fintech subsectors are the largest contributors to the city's startup economy, with the latter accounting for 80 per cent of key funding investment across Australia in the last financial year.
"These startups thrive in environments, such as that found in CoM, characterised by an abundance of talented founders and employees, strong investment opportunities, proximity to research organisations, universities, and corporate organisations, and a conducive policy environment.
"In aggregate, city workers produce 23 per cent more value add than the average Victorian worker. This is driven, in part, by the concentration of diverse businesses in the Melbourne CBD and Docklands precincts and the associated agglomeration economies for CoM."
Updated at 9:50am AEST on 10 September.
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