Despite a brief respite from the 'Big Dry' which resulted in a bumper winter grain crop, a Rabobank Australia quarterly survey showed rural sentiment at two-year lows, with only 16 percent of farmers believing conditions will improve in the year ahead.

Rabobank head of rural banking Neil Dobbin said some farmers believed the drought was returning, while others argued it never really went away.

"There has been a building level of anxiety in much of New South Wales, Victoria and South Australia that they have been heading for yet another dry year," he said.

"Farmers in many areas of eastern Australia have been questioning whether the drought is actually over."

The drought cost an estimated five billion Australian dollars (3.6 billion US dollars) in rural exports in the last financial year, cutting an estimated 0.75 percentage points from overall economic growth.

However, Australia's official rural forecaster ABARE controversially declared the drought was essentially over in June last year and the government has assumed that dry conditions will ease in its economic modelling.

ABARE stood by its declaration, saying no nation-wide drought declaration had been made for the current crop planting season.

The National Farmers' Federation said the forecasters had been proved wrong.

"We've got farmers who are still struggling with drought and have said that consistently," federation president Peter Corish said.

Treasurer Peter Costello urged caution when commenting on figures released Monday showing a rebound in rural exports had helped narrow the current account deficit.

"It would be foolish if we were to think that the effects of the drought had been worked through," Costello told parliament.

The government has predicted consistent economic growth as a strong world economic picks up the slack from a gradually weakening domestic market.

However, BT Financial chief economist Chris Caton said the transition may not be so smooth and national economic growth forecasts may need to be revised downwards as a result of drought and falling agricultural commodity prices.

"One has only to look out the window to be concerned about the longevity of the recovery from the drought," he said.

A major reason for the drought was the El Nino weather pattern, which dries up moisture coming in from the Pacific Ocean.

The El Nino cycle was believed to have ended but climatologist Roger Stone said that while the medium-term looked promising, there was still concern about the next 12 months.

"The pattern still hasn't unfolded as it normally would ... to be honest, the models from overseas still are showing there's potential for an El Nino to develop as the year goes on," he told public radio.

Corish described the prospect of a second El Nino in as many years as "devastating", saying rain was needed before the end of July to allow winter plantings.

"The situation could be saved with some rain; otherwise the consequences will be dire," he said.

The renewed drought concerns come as authorities on Monday tightened water restrictions in Sydney as dam levels in Australia's biggest city approached record lows.

The move is unusual because it comes on the first day of the southern hemisphere winter, a time when water restrictions are normally relaxed.

Rangers will patrol Sydney's suburbs with the power to levy 220 dollar on-the-spot fines on residents found using garden sprinkler systems or using hoses to wash cars.

TERRA.WIRE