However confidence is still at levels last seen during the early 1990s recession, and many businesses expect a recession in 2009.
NAB's monthly business survey shows that big interest rate cuts and the $10.4 billion stimulus package have given the retail and wholesale a lift.
The survey shows business confidence rose 10 points to minus-20 index points in December. A reading below zero indicates that pessimists outnumber optimists.
"Business confidence jumped 10 points in December - albeit the level of minus 20 is little better than the bottom of the 1990 recession,'' said NAB chief economist Alan Oster said.
"The result were driven by much larger jumps in retail and wholesale (up 35 and 26 points respectively) in response to the government's initiatives.''
The November survey's reading was the lowest level since late 1992, when the Australian economy started its recovery from the last economic recession.
NAB has cut its forecasts for GDP growth, saying the Australian economy will shrink by 0.5 per cent in 2009, but grow by 1 per cent in 2010.
Mr Oster said NAB's forecasts meant tough times ahead for the Australian economy, with no fast recovery in store.
"The forecasts imply a relatively mild recession - especially compared to falls in growth of around 2 per cent in the major industrialised economies,'' Mr Oster said.
"On a quarterly basis, we do not see any substantial turnaround getting underway until 2010.''
NAB expects the Reserve Bank's cash rate to fall from 4.25 per cent to 2.50 per cent.
Mr Oster said the RBA could cut the cash rate by 75 basis points at its next decision on February 3, followed by another 50 points easing in March.
In the third quarter of 2009 the central bank was likely to lower the cash rate by another 50 basis points, to 2.50 per cent, as a deteriorating jobs market forced the RBA's hand, he said.
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