Australia's drought is deemed the worst on record

Australia is set to see its winter wheat crop more than double, as heavy rains offset a record drought, according to official forecasts.

The Australian Bureau of Agriculture and Resource Economics forecasts that wheat crops will hit 26 million tonnes in 2007, up from 10 million in 2006.

The higher output could add 1% to economic growth after a period of extreme weather that blighted crops.

The rise is good news for farmers, but analysts say it could fuel inflation.

"The combination of improved seasonal conditions and better prices have given farmers plenty of reasons to smile," said Craig James, chief economist with Commonwealth Securities.

The rain has mainly fallen in coastal areas, but some key central agricultural land remains short of water and restrictions will still apply.

Broader impact

In the longer term, analysts have raised fears that growth in the farm sector might have a harmful impact on the economy as a whole.

"In the near term, a revival in the farm sector is not a problem," said Adam Carr, a senior economist at UBS.

"It means under-utilised land is more productive, which should help temper rising food prices."

But problems could occur in 2008 "when the boost to farm incomes feeds through to the broader economy," he added.

The figures come a week after a member of Australia's central bank said inflation could increase next year and the bank would look into whether interest rates should be raised.