Businesses are more optimistic about their future than at any time in almost two years in yet another sign that an economic recovery is on the way, a survey shows.

The National Australia Bank (NAB) monthly business survey’s measure of business confidence rose six index points to plus-10 points in July.

It was the highest recording for confidence since August 2007, with the measure “now approaching long run average levels”.

The improvement was most pronounced among construction, transport and manufacturing companies, as the federal government’s infrastructures package started to feed into the domestic economy, the NAB report said.

The business confidence index had reached minus-30 points in early 2009.

Meanwhile, the survey’s measure of business conditions – determined by respondents’ views on trading, profits and employment – rose three index points to plus-one point in July.

It was the first time since the middle of 2008 the overall business conditions index has been above zero.

NAB chief economist Alan Oster said the July results were encouraging, and “clearly points to an accelerating growth momentum” for the domestic economy.

Westpac Banking Corporation economists said the key figures from the survey suggest “the economy is turning the corner”.

“Monthly business surveys can be volatile so it is encouraging to see a repeat of the more positive tone evident in the June survey,” the economists wrote in a research note.

But the survey also highlighted some concerns.

While business forward orders were stronger in July, particularly in manufacturing, mining and construction, they fell in the retail and wholesale sectors as the impact of the federal government’s cash handouts to tax payers began to fade.

Firms in most sectors also continued to run down inventories and retrench staff in July.

Mr Oster said it would be “increasingly more difficult” to maintain the current pace of improvement in both conditions and confidence.

“We are still very much in the camp that, however welcome the current strength might be, it will not be able to be sustained,” Mr Oster said.

“The survey very much points to the start of a fade in the strength of the consumer.”

The proportion of businesses not requiring credit fell to 35 per cent in July, from 43 per cent the previous month, the survey said.

CommSec chief economist Craig James said the reluctance of businesses to borrow was likely to change over the remainder of 2009.

“Slowly but surely conditions are returning to normal for Aussie businesses,” he said.

Based on the Reserve Bank of Australia’s (RBA) latest forecasts for growth and inflation, NAB said it expected the first official interest rate rise to occur in February 2010.

RBC Capital Markets senior economist Su-Lin Ong said the RBA will want to be sure that business and consumer confidence can withstand any rise in official interest rates from the current “abnormally low level of three per cent”.

“Today’s data would suggest that it can, although the RBA may exercise some patience to see how confidence and the economy fares when the fiscal candy is withdrawn in the coming months,” Ms Ong said.

NAB expects gross domestic product (GDP) to be flat in calendar 2009, and rise by 1.25 per cent in 2010.

Its previous forecast was for a contraction of 0.5 per cent in 2009 and a one per cent expansion in 2010.

The NAB survey of more than 400 firms across the non-farm business sector was conducted between July 27-31.