"We're in the worst drought in a hundred years -- that's going to make next year's budget very difficult," he told reporters late Monday.

"We are facing a recession, possibly depression, in rural production."

The central bank, the Reserve Bank of Australia, said in a quarterly monetary policy statement Monday the drought would directly reduce economic growth by about half a percentage point in the year ahead.

But Costello's comments, in which he repeated the bank's prediction that farm production could fall by 20 percent, drew criticism from some economists and farmers.

"These words recession and depression don't have official meaning, they're all economic euphemisms," Credit Suisse Australia economist Barry Hughes told ABC radio.

Hughes said Costello's comments may be just an attempt to soften people up for a tougher budget next year.

"I have no firm idea of what the treasurer has in mind but it is very common for treasurers of all political persuasions to try to position themselves ahead of the ... budget," he said.

The Western Australian Farmers Federation said predictions of a downturn in farm production next year could lead to a loss of confidence in rural industries.

"Comments from the Treasurer saying there's going to be a depression next year certainly will impact upon financiers and government in the city," said federation president Trevor De Landgrafft.

"Quite clearly no-one can see what next year's production's going to be like; we are certainly hoping for a good season next year but clearly there will be a downturn.

"I think the comments saying there's actually going to be a depression or a depression in production, I think is really going a bit too far," he said.

All rights reserved. � 2005 Agence France-Presse. Sections of the information displayed on this page (dispatches, photographs, logos) are protected by intellectual property rights owned by Agence France-Presse. As a consequence, you may not copy, reproduce, modify, transmit, publish, display or in any way commercially exploit any of the content of this section without the prior written consent of Agence France-Presse.