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Business confidence rising despite poor econo -

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MARK COLVIN: Almost all the major indicators show Australia's economy is getting worse, yet there's been a surprise jump in business confidence.

Two surveys released today reveal that businesses think the change of government and the falling Australian dollar will deliver stability and growth this year.

But the optimism could soon be spoiled by a reminder of economic reality: this week's official figures are expected to show another increase in unemployment.

Here's business reporter Pat McGrath.

PAT MCGRATH: There's little doubt Australia's facing the toughest economic conditions seen since the depths of the global financial crisis.

Unemployment's edging towards 6 per cent, growth has slowed, and consumer spending remains sluggish.

But more than 600 businesses surveyed by NAB (National Australia Bank) have displayed a surprising level of optimism about the months ahead.

The bank's chief economist is Alan Oster.

ALAN OSTER: What we've had is about the sixth-biggest monthly increase in confidence we've ever had, so it is very large and in net terms it's gone from what we call minus three to plus six.

PAT MCGRATH: Businesses were quizzed about their hopes for the economy during the days leading up to Saturday's federal election.

ALAN OSTER: It was in a period where I think political expectations of a change of government and probably a better policy framework in terms of at least a clear cut: if you don't have minority government anymore, and you have your policy and you get on with it.

PAT MCGRATH: Alan Oster believes political renewal often inspires optimism - just not on this scale.

ALAN OSTER: We haven't seen this sort of behaviour before. We've looked in the past to see when governments change, has it had an impact on confidence? And the short answer is, in the past, the answer was no.

PAT MCGRATH: But while businesses have high hopes for the future, they told NAB that profits and sales were down, and overall business conditions remained tough last month.

And Westpac economist Justin Smirk says employers are still holding off on hiring and investing.

JUSTIN SMIRK: Business confidence is just really a sentiment thing, and what really matters is underlying business conditions. So you may get a bounce in confidence, you may get a near-term bounce in activity as firms have been hesitant to step back into the market, but whether it continues and actually makes a real difference, or it's just filling in a hole that appeared for a little moment is probably the more key thing.

PAT MCGRATH: So what would it take for confidence to actually translate into proper economic growth and stimulation of the economy?

JUSTIN SMIRK: What we'd really need to see is with the turn off of the mining investment over the next year - what we're seeing right now - is a build up in sort of more the domestic side, and holding that back has been the strength of the Australian dollar.

PAT MCGRATH: But another survey released by Citi today shows the falling Australian dollar is already boosting confidence among exporters.

Citi's Scott Southall says companies are forecasting much higher export volumes this year.

SCOTT SOUTHALL: And we've seen it across all segments, both large and small, but the most significant impacts are probably those exporters in that 25 to 150 million in turnover range.

PAT MCGRATH: Is there a disjunction here between confidence looking forward and the economic realities of today?

SCOTT SOUTHALL: There is generally a strong correlation between these indicators and financial outcomes. That being said, again, things can pull through and change them. We have not seen those real results pull through yet into the economy.

PAT MCGRATH: The growing confidence of exporters of course relies on the Australian dollar continuing its decline.

It's climbing, and is today buying around 93 US cents - its highest level since late July.

Overall business confidence depends on the health of Australia's economic indicators, like the unemployment rate.

It's tipped to rise to 5.8 per cent when official figures are released on Thursday.

NAB's Alan Oster is waiting to see what impact a dose of economic reality will have on this latest show of business optimism.

ALAN OSTER: The actual conditions of the economy are quite tough, and I think one of the important issues will be as you go forward, will this confidence level be maintained or will it erode away in the face of still pretty tough conditions out there?

MARK COLVIN: NAB chief economist Alan Oster ending Pat McGrath's report.