The National Australia Bank's monthly survey of how optimistic businesses are about the future hit a 15-month high in July, as Australia's non-farm economy outpaced the sluggishness seen elsewhere in the world.

The reading will probably undermine the case made by the Australian Industry Group (AIG) last month for a cut in interest rates from 4.75%.

That makes borrowing much more expensive in Australia than in the US, Europe, the UK or Japan.

The AIG said on 1 July that its index of manufacturing performance showed output was flat in June.

Bullish

But the economy seems to be surviving nonetheless, and the Reserve Bank of Australia has made it clear that as things are, it will stick to its guns.

One of the key reasons is the property market, as Australia's house price boom outstrips even the UK.

Prices in Sydney rose 27% in the year to June, taking the price tag of an average dwelling to A$569,000 - more than 12 times average earnings.

Ten years ago, the price was just A$176,000.

The upsurge in mortgages, the RBA said in a statement, was "well in excess of what could be considered sustainable" in the medium to long term.

"The risk presented by these developments is that, the longer they go on, the larger, will be the contractionary effect on the economy when they inevitably turn."