The attitude of small and medium businesses to the Australian economy has dramatically improved over the last three months, with most expecting activity to expand or remain the same.

A survey conducted at the beginning of August by financial services firm KPMG released on Monday shows that 43 per cent of responding businesses expect the economy to expand, 39 per cent expect the level of activity to stay the same, and 18 per cent expect a contraction in the next six to 12 months.

The same survey conducted in April showed that 58 per cent of respondents expected the economy to contract.