Australian firms continue to be optimistic about the economy despite higher interest rates, with business confidence rising to a seven-year high in November, a survey shows.

The National Australia Bank’s (NBA) latest monthly business survey showed business confidence rose three index points to plus 19 points in November, its highest level since May 2002.

The confidence of firms in the mining, retail and transport sectors rose in November, while the construction and wholesaling industries weakened, the survey found.

Business conditions fell two index points to plus 10 points in November, with trading conditions were unchanged at plus 15 points and profits were down two points to plus 11 points.

NAB chief economist Alan Oster said the local economy continued to show significant momentum, with the forward orders index rising to a two-year high of plus nine points, underpinning confidence.

“Confidence also continues to build and forward orders are now at their highest level since late 2007,” Mr Oster said in a statement on Tuesday.

“All of this is truly a remarkable outcome and one that continues to surprise.”

Citigroup senior economist Joshua Williamson said businesses shrugged off a second consecutive interest rate rise by the Reserve Bank of Australia (RBA) in November.

The central bank lifted the cash rate by 25 basis points to 3.5 per cent on November 3, following a similar move in October.

The RBA has subsequently raised the cash rate by 25 basis points to 3.75 per cent on December 1.

“Businesses continue to expect positive trading conditions, employment and forward orders despite the survey period including the second RBA interest rate increase,” Mr Williamson said.

NAB has forecast a lift in economic growth and drop in unemployment due to continuing business confidence.

Australian gross domestic product (GDP) growth is now forecast to be 1.25 per cent in calendar 2009, up from a previous forecast of one per cent, and the economy is expected to grow by 2.75 per cent in 2010, up from 2.5 per cent previously.

According to the latest official figures, GDP grew by 0.6 per cent in the year to June 30. The September quarter data is due on December 16.

“While it is clear that a good deal of growth was brought forward by the fiscal package, the economy - as reflected in the survey results - still has substantial momentum in the fourth quarter with high levels of confidence and forward orders,” Mr Oster said.

“The end of de-stocking and increased capacity utilisation also points to a broadening in the recovery process.”

The unemployment rate is now forecast to peak at 6.2 per cent in mid-2010, compared to a previous estimate of 6.5 per cent.

Australia’s jobless rate rose 0.1 percentage point to 5.8 per cent in October, the latest official data shows.

“But while we may be passing the stage of active job cuts, employment growth is likely to be very moderate,” Mr Oster said.

NAB has forecast the RBA to lift the cash rate by 25 basis points in both February and March of 2010, to 4.25 per cent.

“Thereafter, we continue to expect the RBA to pause for around six months before delivering progressive 50 point (two increases, each of 25 basis points) rise until rates are back to neutral,” Mr Oster said.

AAP