SYDNEY -- Australia's worst drought in almost a decade has left many farmers on the brink of ruin and could cost the economy up to $1.14 billion, economists have warned.

Farming groups say properties in the worst-affected areas have been without adequate rainfall for almost two years and whole communities could disappear unless the drought breaks soon.

Two-thirds of New South Wales (NSW), Australia's most populous state, is officially drought declared, along with about 20 percent of Queensland and large tracts of Victoria, AFP reported.

Bill Powell, a farmer from Walgett in north-western NSW, admitted the sight of his starving cattle searching for sustenance in parched earth that yielded nothing but dust had forced him to consider leaving the property his family have worked for four generations.

Instead, he intends to sell his emaciated cattle at a discount of up to 70 percent with the hope of restocking his herd sometime in the future.

"It's time to cut losses," he said this week.

Meteorologists at the National Climate Center predict the unrelenting conditions are likely to continue at least until October, with eastern Australia expected to bear the brunt of the drought.

The situation has been exacerbated by the arrival two months ago of climactic conditions that forecasters believe are a precursor to an El Nino weather pattern.

The El Nino, caused by high sea temperatures in the tropical Pacific Ocean, has coincided with the worst droughts of the past century.

The government's rural forecaster, the Australian Bureau of Agricultural and Resource Economics, has already slashed its estimates of production levels.

Winter crop production is expected to fall by 14 percent, rising to 40 percent in some areas of Queensland.

The General Secretary of Queensland Agforce, a rural lobby group, said entire communities were under threat because the drop in farm incomes meant small towns that relied on custom from landholders were going broke.

"We are in the middle of an extreme drought situation," he said.

The NSW government announced a drought assistance package this week and will hold further talks on ways to ease the crisis over the coming weeks.

Westpac economist Justin Smirk said the squeeze on farmers had been tightened by recent rises in the interest rates, appreciation of the Australian dollar and falling prices internationally.

Smirk estimated the fall in farm incomes could shave 1.0 percent off Australia's economic growth in 2002-03, equivalent to about $2.0 billion.

He said the drought also had implications for interest rates, which rose in May and June and until recently were widely considered to be heading from the present 4.75 percent to about 5.5 percent by early next year.

"The domestic impact of the drought, coupled with the international effects of falling share markets, make a powerful argument to leave interest rates on hold," he said.

Extreme weather conditions are nothing new in Australia, the country's national anthem even describes a land "of droughts and flooding plains".