MELBOURNE, AAP – Victoria’s deficit has blown out to $19.5 billion thanks to the Delta COVID-19 outbreak but the state treasurer is predicting a quick economic recovery.

State Treasury’s mid-financial year budget update, released on Friday, shows the 2021/22 deficit increased by $7.9 billion as the government locked much of the state down and ramped up support for businesses and households.

The report said the state’s economy was “rebounding strongly” in early 2021 before a lockdown in July and then another that lasted from August to October, as part of efforts to contain the new variant.

“The outbreak of the Delta variant of COVID-19 caused a setback to this strong recovery, but the economic recovery is expected to resume quickly now that most domestic restrictions have been eased,” it reads.

The state government spent $10 billion on business support during the two lockdowns and the federal government spent $3 billion.

Treasurer Tim Pallas said the support meant businesses and households were in a “robust position” as the economy reopened.

The recovery will also be supported by low interest rates and strong demand for workers, he said.

Treasury forecasts the economy will bounce back by 4.5 per cent, compared with a prediction of 3.25 per cent made in the May budget.

Employment growth is expected to reach 2.5 per cent in 2021/22, unchanged from the budget, while the unemployment rate is expected to average 4.5 per cent in 2021/22, lower than the forecast 5.75 per cent.

Deficits have increased over the forward estimates to $5.3 billion in 2022/23, $2.1 billion in 2023/24 and $2.1 billion in 2024/25, though the treasurer predicts Victoria can achieve an operating cash surplus of $2.5 billion in 2022/23 – an increase on a predicted $1.1 billion in the budget.

Net debt has increased by $2.4 billion this year before growing to $162.7 billion in the 2024/25 financial year, which equates to more than a quarter of gross state product.