The Australian economy will remain sluggish for at least the next 18 months despite forecasts of above trend growth, a senior Treasury bureaucrat says.

Treasury director of the Domestic Macroeconomic Group Dr David Gruen says the fewer number of hours being worked by Australians could be masking a higher unemployment rate after employers cut hours rather than jobs during the financial crisis.

Dr Gruen said even if the economy experienced above trend growth next year, it would take time to bridge the gap between GDP growth and trend growth of three per cent.

"The unemployment signal is underestimating the amount of slack in the economy, simply because employers have been able to cut hours rather than jobs," he said after delivering a speech to the Australian Business Economists (ABE) conference in Sydney.

"So, it seems to me, even with these optimistic forecasts of aggregate growth, we're still looking at some amount of slack in the economy for 18 months or so.

"The reason I say that is because we've just gone through a year in which the economy grew by 0.6."

Dr Gruen said it was unlikely that the economy would spring back boldly in 2010.

"You don't just go back to trend growth, you've also got a gap you've got to fill.

"Even if we were to go to above trend growth through 2010, there'll still be slack in the economy for a good 18 months or so, if not longer."

He said his views were based on work being carried out at Treasury.

"But that's an aggregate story, I accept that."

Dr Gruen's comments came after the release of private sector survey on Tuesday that found business confidence had risen to a seven-and-a-half year high in November.

The National Australia Bank's (NBA) monthly business survey showed business confidence rose three index points to plus-19 points in November, its highest level since May 2002.

NAB has upwardly revised its forecasts for economic growth and unemployment due to the ongoing confidence of businesses.

Australian gross domestic product (GDP) is now forecast to be 1.25 per cent in calendar 2009, up from a previous forecast of one per cent, and the economy is expected to grow by 2.75 per cent in 2010, up from 2.5 per cent.

According to the latest official figures, GDP grew by 0.6 per cent in the year to June 30.

In his earlier speech, entitled The Return of Fiscal Policy, Dr Gruen revealed that Treasury modelling during the financial crisis had assumed 70 per cent of fiscal stimulus payments to Australians would be spent, with the remainder being saved.

"This 70 per cent assumption was chosen to accord with empirical evidence on spending out of temporary tax cuts," he said.

"So it is at odds with the permanent income hypothesis which would predict that spending from one-off tax rebates would be spread evenly over consumers' lifetimes rather than largely spent over a couple of years."