Australian economy grinds to a halt

The drought has stymied growth

Australia's economy has ground to a halt, recording just 0.1% growth between April and June.

That is the weakest level in more than two years, and was caused by a sharp drop in exports and a slump in tourism.

Treasurer Peter Costello blamed the stagnation on the war, the drought and the deadly Sars virus.

But he was still upbeat about the months ahead, and continues to predict 3% growth for the Australian economy during the year as a whole.

"The outlook for the economy remains favourable, with domestic demand retaining significant momentum, underpinned by historically high levels of consumer and business confidence," Mr Costello said.

Despite the weak data, the reserve bank of Australia is not expected to cut interest rates from 4.25% on Wednesday.

Australia, like the UK, is suffering from a red-hot housing market even though there is little strength in the wider economy.

Just one in ten economists expected a cut following the meeting, according to a Reuters survey.