Australian drought 'to cut GDP'

Australia's drought is deemed the worst on record

Australia's central bank has warned a national drought is likely to slow economic growth, as a result of a drop in farming output.

Australia's reserve bank said the drought would cut annual economic growth from 1.9% to 1.15%.

The drought - deemed the country's worst on record - could cut farm output by some 20% and farmers' spending and investment levels could fall.

The bank said the drought could have other "indirect" economic effects.

Wheat output

The prediction echoes an earlier warning by Prime Minister John Howard of the drought's economic damage.

The ongoing drought prompted Australian Crop Forecasters to reduce its 2006-07 wheat forecast on Monday, from 11.5 million tonnes to 9.6 million tonnes.

"Several dry months rainfall in October continued to deteriorate, falling to well below the long term average across most of the cropping belt," said the organisation.

Global wheat prices recently hit their highest level in 10 years after Australian officials said the nation's harvest could be reduced by half.

Despite the drought's negative impact on the economy, the bank said the impact on consumer prices was likely to be "less pronounced".