A new survey released by the National Australia Bank (NAB) revealed that business confidence in the September quarter had returned to pre- global financial crisis levels. The NAB's Business Quarterly Survey also showed that business conditions had eased marginally during the same period, with softer employment offsetting the improved profitability while trading conditions remained unchanged.

The pickup in business confidence was broad-based across every industry sector except finance, and sharp rises were also recorded in transport and wholesale, and every state, with Queensland as the exception where the business confidence remained unchanged. Business confidence is strongest in transport and property services and weakest in recreation.

In the report, NAB said: "Although financial markets were generally calmer than in the June quarter, concerns did emerge about the pace of the recovery in the US and China. Signs of softness in the domestic economy appeared, with forward orders slipping into negative territory and capacity utilisation declining."

It noted that the property sector had experienced a sharp fall in conditions as the fiscal stimulus is removed. The strong improvement in confidence was possibly an effect of the anticipation for greater private sector activity.

According to NAB, conditions fell in mining and finance, but improved strongly in transport and recreation. Conditions were strongest in transport and recreation and weakest in retail, wholesale, property services, agribusiness and construction.

Geographically, the report showed that conditions weakened sharply in Western Australia, in line with the decline in mining. The NAB report concluded that Victoria is now the strongest of the major states, followed closely by South Australia.

The quarterly business report showed that business capital spending plans over the next 12 months had increased modestly in the September quarter. The average woking hours continue to increase, but the proportion of firms concerned about labour shortages was stable.

The report concluded that lack of demand remains an issue while cost pressures continue to be weak.

According to NAB, Australia's GDP is expected to grow by 3¼% in 2010-11 rising to 4¼% in 2011-12. Domestic activity may be starting to turn around, but still soft. Growth in the construction sector is becoming more reliant on the private sector with the government stimulus waning.

The peak in the AUD/USD exchange rate is now seen at 1.05 in mid-2011, with only a modest fall to 0.98 by the end of next year expected. Core inflation is pegged at 2¾% by end of 2010 and predicted to remain around that rate by end 2011.

The business report predicted that RBA is likely to raise rates before Christmas, probably in November.