National Australia Bank (NAB) says its survey showing business conditions improving in March could prompt four more official interest rate rises by Australia's central bank this year.
The NAB monthly survey showed forward orders at a near six-year high in March and confidence remaining strong despite a dip from February.
Business conditions rose five index points to 13 in March to its highest reading since January 2008.
Confidence fell three points to 16 points in March after hitting seven-year highs the previous month.
"After a very strong final few months of 2009, the survey suggested a slower start to 2010 but one where confidence remained high," NAB chief economist Alan Oster said.
"Over the last two months, however, activity seems to have accelerated sharply while confidence readings have bounced around but remained at very high levels."
NAB has lifted its forecasts for domestic gross domestic product (GDP) following a rebound in the nation's major trading partners and higher prices for leading exports.
Economic growth in Australia's major trading partners is forecast to be 4.75 per cent this year compared to minus 0.4 per cent in 2009.
The quarterly contract prices for iron ore and coal are expected to rise 115 per cent and 55 per cent respectively, the report says.
NAB has lifted growth forecasts by half a percentage point to 3.5 per cent this year and from 4.0 to 4.25 per cent next year.
Australia's economy grew by 2.7 per cent in the year to December 2009.
RBC Capital Markets senior economist Su-Lin Ong said the survey hinted at a tightening of economic capacity.
"A strong business survey which highlights waning capacity in both goods and labour markets as the economy moves back to an above-trend pace of growth," Ong said.
An increase in demand and GDP forecasts indicated employment growth to strengthen to 3 per cent a year, Oster said.
Oster said the central bank was likely to keep tightening monetary policy to subdue pressures on wages and prices.
The RBA lifted the cash rate by 25 basis points to 4.25 per cent on April 6, its fifth such move since October 2009.
NAB expects the cash rate to be 5.25 per cent by the end of the year before rising to 6 per cent next year.
"We have pencilled in rate rises in May, August, September and December [in 2010]," Oster said.
- AAP
