Australia's economy is growing fast, in spite of a nationwide drought that has devastated crops and slashed farm output, national accounts have shown.

While the drought has cost Australian farmers 5bn Australian dollars (�1.8bn; $2.8bn) in income, the knock to the economy at large has not been as severe as previously thought, the government said.

Farm output fell by 12.5% during the three months to September, yet the economy expanded by 0.9%.

The figure leaves Australia set to record 3.7% economic growth this year.

Private investors

The government attributed the economy's strength to a buoyant private sector.

"The Australian economy continued to perform exceptionally well in the September quarter, considering the effect of drought," Treasurer Peter Costello said.

"The strong growth was underpinned by a solid increase in private investment," he added, insisting that had there not been a drought, Australia's growth would have reached 4% this year.

Private business investment rose by 2.9% during the quarter, the Australian Bureau of Statistics said.

Private investment has risen 12.2% since last year.

House purchases rose 3.3% during the quarter.

Australia's central bank left interest rates unchanged at 4.75% on Wednesday.