Australia's ongoing drought, the worst in over a decade, has forced economists to slash crop forecasts for the year to March 2003, with little sign of rain ahead.

The Australian Bureau of Agricultural and Resource Economics (ABARE), the country's official rural commodity analyst, has cut its grain estimates by 26% and said the lost output could cost grain farmers up to A$1bn (�347m).

Lack of rain - for over two years in some areas - has created an official drought in two-thirds of New South Wales, the country's most populated state, and in about 20% of Queensland.

The crippling effect on farmers shows little sign of easing, with meteorologists forecasting rainfall 50-60% below average from August to October.

Further forecast cuts

The ABARE on Thursday cut its forecasts for wheat, barley and canola crops to 24 million tonnes against its initial estimates of 32.3 million.

Chief commodity analyst Terry Sheales said the situation would get worse without substantial rainfall as temperatures increase past August and crops develop.

"If conditions remain relatively dry, further downgrading of the crop estimates can be expected," said Mr Sheales.

Not a drag on economy

However, the ABARE was more positive on the drought's effect on the wider economy. Sheales said the loss of production would have some effect "but it will be very, very small".

Agriculture accounts for about 3% of Australia's Gross Domestic Product, which is forecast to grow at 3.75% in 2002/03.

However, the rural community is already counting the cost with many farmers on the verge of ruin.

"The affect in rural communities will be far greater because they depend on farmers' incomes, spending on rural businesses and so on," said Mr Sheales, adding "but we don't have estimates on that."