The unemployment rate in Victoria is set to double and house prices are expected to slide by 9 per cent this year due to the devastating economic impact of the coronavirus pandemic.

Department of Treasury and Finance modelling shows Victoria is set for its worst economic battering since the 1990s recession, even if the spread of the virus remains slow for the coming six months.

Victorian Treasurer Tim Pallas has warned the economic effects of the coronavirus pandemic will be worse than expected. Credit:Jason South

The release of the grim economic forecasts came as the Victorian Chamber of Commerce and Industry warned the government against “ad-hoc spending” of borrowed funds that may not address “structural” challenges needed to address the crisis.

In a letter obtained by The Age, the peak business group urged the government to carefully manage its "debt accumulation" amid plans to take out a massive loan to fund its emergency measures.