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However, confidence in the business sector could be eroded by continued lockdowns, outbreaks and boarder closures.

Executive director of the Illawarra Business Chamber Adam Zarth said businesses have said they were turning the corner following the COVID-19 pandemic.

"All key indicators are trending upwards in our region," he said.

The survey shows that business confidence in the Illawarra and Southern Highlands was positive for the first time since September 2019.

"Much of the survey was completed prior to the Northern Beaches outbreak and Wollongong's inclusion in the Sydney 'red zone'."

Mr Zarth said the survey clearly shows the resilience and optimism in the business community after an exceptionally challenging year.

"The NSW Government has done a good job in listening to business needs and responding as soon as possible by easing restrictions and opening up communities," he said.

"However, since the survey results were finalised, we've heard from local business owners about how quickly confidence can be eroded following new outbreaks, lockdowns and border closures.

"The first quarter of this calendar year will be crucial for many businesses as a number of government support packages are also reduced or come to an end.

"Despite overall increases in confidence, 23 per cent of businesses state-wide claim they are at a high risk of failure when supports such as JobKeeper, tax relief, interest waivers and other measures conclude."

Mr Zarth said the vulnerability will hang over the small business sector for much of the year and will need to be factored into decisions about withdrawing support measures.

"The other clear signal from our survey is that an increasing number of Illawarra and Southern Highland businesses are looking to expand their capacity to meet demand, with more businesses prioritising expansion than planning to downsize their business," he said.

"Businesses have also indicated an increased inclination to hire new staff which is another encouraging sign."

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