[an error occurred while processing this directive]
BBC News
watch One-Minute World News
Last Updated: Wednesday, 20 December 2006, 11:35 GMT
Drought drag on Australian growth
Australian farmer overlooks land impacted by drought
Australia's drought is considered to be the worst on record
The Australian government has reduced its economic growth forecast after the worst drought in a century caused a 20% drop in farm output.

Treasurer Peter Costello said in his mid-term review the economy was likely to grow 2.5% in the year to June 2007.

That is down from his estimate of 3.25% in the May budget.

The economy expanded by just 0.3% in the three months to September, compared with the previous quarter, the slowest growth rate in more than three years.

'Risks to economy'

"The Australian economy remains sound although it is buffetted by severe drought," Mr Costello said.

"The downturn in the farm sector and related industries since the budget has reduced forecast growth by three quarters of a percentage point.

"The risks to the economy are weighted to the downside, particularly if dry conditions persist."

Earlier this month it was revealed that Australia's key crop production fell by more than a third during the three months to September.

And in November the Reserve Bank of Australia warned that the national drought was likely to slow economic growth, as a result of a drop in farming output.

Inflation worries

On Wednesday Mr Costello raised the government's inflation forecast from 2.75% to 3.0%, at the top end of the Reserve Bank of Australia's 2% to 3% target band.

He said rising prices for fruit and fuel had boosted inflation, but it was expected to drop back into the middle of the 2008.

Australia's central bank has been pursuing a policy of interest rate rises in recent months, and increased base rates by a quarter of a percentage point to 6.25% in November in a bid to keep a lid on inflation.

However any further rises in inflation, outside the bank's target band, may be enough to provoke an interest rate rise in early 2007.




SEE ALSO
Drought slows Australia's economy
06 Dec 06 |  Business
Australian drought 'to cut GDP'
13 Nov 06 |  Business
Wheat prices jump to 10-year high
11 Oct 06 |  Business
AWB faces $1bn US farms lawsuit
11 Jul 06 |  Business
Zimbabwe 'running out of wheat'
04 Mar 06 |  Africa

RELATED INTERNET LINKS
The BBC is not responsible for the content of external internet sites



FEATURES, VIEWS, ANALYSIS
Has China's housing bubble burst?
How the world's oldest clove tree defied an empire
Why Royal Ballet principal Sergei Polunin quit

PRODUCTS & SERVICES

Americas Africa Europe Middle East South Asia Asia Pacific