Analysis by SGS Economics and Planning shows this drop is in line with the national decline of 6.5 per cent.
SGS Economics and Planning principal Terry Rawnsley said half of the contraction was a result of retail, food services and tourism being affected by the pandemic.
The other half was due to the drought impacting agriculture production and then food manufacturers.
“While the summer bushfires and COVID-19 have captured all the attention, the drought still remains a major challenge for the Moira Shire,” he said.
He said the shire saw a decline of about 6 per cent in GDP last financial year because of the drought.
“So two tough years back to back is a real challenge for the shire to deal with,” he said.
However, Mr Rawnsley said good rains in the region would help it bounce back in the next financial year.
“With around 22 per cent of the Moira Shire’s income directly generated by Agriculture good rains over the next six to 12 months will help the local economic recovery,” he said.
Moira Shire corporate general manager Simon Rennie said the agriculture industry has received the "best start" it has seen in a number of years.
He said possible funding and support for businesses affected by COVID-19 would also help the region recover.
“The Federal Government announcement that Moira Shire Council was eligible for the $1 million drought funding means we are currently working through the various projects that will be suitable for this funding,” he said.
“It is anticipated the decision on these projects will made in coming weeks with an official announcement to follow."
“Our COVID-19 Financial Hardship Policy is just one of many initiatives we are putting in place to directly assist individuals and business hit hard by the coronavirus restrictions.”
To help the region, council has also stopped charging user fees for sporting clubs that use municipal land or buildings, and have waived rent in the June quarter for COVID-19 affected businesses operating on council land.