Maintaining mask rules, density limits and dancing bans for an extra month in NSW will drive economic activity, not impede it, the premier says.
As NSW recorded a rise in COVID-19 deaths, daily cases and hospitalisations, Premier Dominic Perrottet said extending restrictions to February 28 was "the right approach".
It will suppress the spread of Omicron ahead of increased movement once schools return next week, he said.
"It's better to have the two-square-metre rule than no square-metre rules and not having the confidence in the community to go out to restaurants and bars," Mr Perrottet told reporters on Tuesday.
Confidence is front of mind for the premier after the latest ANZ-Roy Morgan index shows consumer confidence fell 2.4 per cent last week, continuing a weeks-long slump.
Business confidence - a guide to future hiring and investment - also fell dramatically in December in NSW, according to a monthly NAB survey released on Tuesday.
Under the continuing restrictions, hospitality venues including pubs, nightclubs and cafes will keep an indoor density limit, masks are required in all indoor settings except homes and QR code check-ins are compulsory at certain premises, including hospitality venues and shops.
The decision would reassure the public that bars, cafes and retail were safe to visit, the premier said.
"I believe the maintenance of these measures ... will actually drive economic activity, not impede it," he said.
Singing and dancing also remain banned in hospitality and entertainment venues except for performers.
Mr Perrottet acknowledged that was "a pain" for young people and some businesses, but his priority was returning children to classrooms next week and resuming non-urgent elective surgery in mid-February.
Non-urgent elective surgery was suspended on January 8, after resuming on November 15 following the Delta lockdown.
Data released on Tuesday for the year to June 2021 - just before the Delta wave hit - shows the average elective surgery waiting period in NSW increased nearly 30 per cent in a year.
One in nine people waited more than a year for their surgery, up from one in 50 people in 2018/19, the Australian Institute of Health and Welfare data shows.
"It is our absolute intention to resume elective surgery as soon as we possibly can," NSW Health Deputy Secretary Susan Pearce said on Tuesday.
NSW Health reported 18,512 new cases on Tuesday - a rise of 3421- but the seven-day average lowered to 23,100.
Six of the 29 people who died were unvaccinated, while two people had received three doses and all but one was older than 65.
COVID-positive people in hospital hit a record 2943, but those requiring intensive care dropped by 13 to 183.
Two in three adults are yet to receive a third dose, while more than half of children aged five to 15 are yet to receive a single dose.
Nearly 94 per cent of adults have had two doses of a COVID-19 vaccine, while 95.3 per cent have had one jab.
Mr Perrottet has promised that businesses reeling from the effects of the Omicron wave will get fresh support within a week.
The state Labor opposition says a business support package is urgently needed to lift small and medium-sized businesses out of the summer's "shadow lockdown" as the rampant virus keeps workers and customers at home.
Mr Perrottet also committed to ensuring parents would not be fined for not sending their children to school if they or their children have underlying health conditions that exacerbate the severity of COVID-19.
