A significant drop in customer spending and high business costs have forced Hunter businesses to tighten their belts by dramatically reducing non-essential expenses.
The latest statewide Business Conditions Survey showed although confidence improved across the region, it remains firmly in negative territory, with businesses concerned about cash-strapped customers.
The top three business cost concerns were insurance, taxes and energy.
Lina Bryukhova owns General Organic, a small family distillery located in Beresfield, and said the cost of doing business had increased sharply and unpredictably over the last two years.
"The cost of ingredients such as locally-sourced wheat and sugar, energy, freight and packaging has increased dramatically," Ms Bryukhova said.
"Passing those costs on to consumers will negatively impact our sales, so we have little choice but to absorb the costs."
Ms Bryukhova said high business costs were directly preventing her business from expanding or hiring staff.
"The alcohol excise in Australia is the third highest in the world, and import duty on equipment we've had to source from Russia is 40 per cent, compared with 5 per cent on products from any other country," she said.
"This is a huge burden on our business."
Customers ask for discounts
The survey showed over the last quarter, more than 60 per cent of Hunter region businesses observed reduced demand for products and services, while nearly 70 per cent reported a reduction in purchasing frequency.
More than 50 per cent of businesses had an increase in price negotiations and requests for lower cost substitutes.
"Interest rate increases have an almost immediate impact on customer behaviour," Business Hunter chief executive Bob Hawes said.
Discretionary spending was down on the previous year across all fifteen categories.
More than 50 per cent decreased their donations to charity, over 30 per cent decreased their investment in energy saving initiatives and more than 20 per cent decreased their investment in cyber security.
Employee upskilling, benefits and wellbeing initiatives also decreased substantially.
"This is not an unusual response given the uncertain and challenging operating conditions, but any prolonged reduction of spending in these categories has the ability to impact business progress and future success," Mr Hawes said.
The survey also revealed a large divide in business confidence across the region, with Newcastle and Lake Macquarie highest in the state, while the Hunter Valley is among the lowest.
Mr Hawes said the pause on interest rates had given businesses hope that tough headwinds were easing.
"This increase in business confidence is a positive sign, but we remain cautious," he said.
"While parts of the region's economy have been unaffected by cost of living pressures and are doing well, other businesses, particularly small-to-medium-sized enterprises and those operating in retail, hospitality, and tourism have been hit hard by cost of living impacts," Mr Hawes said.
"In the Hunter Valley, where accommodation, food services and tourism are major economic drivers, reduced consumer spending power is taking a toll.
"To improve the ease of doing business, survey respondents consider taxes, levies and government charges as the area that requires top priority attention from the government."
