Some 88 per cent of businesses that responded to the Scottish Building Federation's quarterly membership survey confirmed they had seen a decline in private sector work during the previous financial year.
Alongside a general lack of confidence in the economy, a lack of demand from private sector clients and lack of bank lending were cited as two principal reasons for the decline.
Many respondents also complained of being priced out of the market for private sector work by competitors, suggesting that the battle for work is becoming increasingly intense.
The survey showed that confidence slipped by eight points in the second quarter of the year compared with the previous quarter, down from –21 to –29. A reading of zero in the index would indicate neither optimism nor pessimism.
SBF chief executive Michael Levack said: "Since the beginning of the year, when the economy has supposedly started to recover, we are actually seeing a significant weakening of confidence among construction employers about the short-term outlook for their business."
Levack said public sector work had sustained the industry but, with cuts expected in tomorrow's emergency Budget, construction firms would now need the banks to start lending again in order to fund private sector work.
The survey comes a day after the Scottish Chambers of Commerce, the Federation of Small Businesses in Scotland and the Scottish Council for Development and Industry all backed builder Rok Scotland's call for VAT on repair and maintenance work to be reduced to 5 per cent to kick-start the industry.
Andy Mallice, Rok Scotland's managing director, said: "The UK government has a golden opportunity to help safeguard these jobs and skills in the emergency Budget. By cutting the rate of VAT on repair and maintenance work, we can ensure Scotland retains jobs."