Lower oil prices, weak growth across Europe, the upcoming general election and political unrest in parts of the world have been identified as contributing factors to the decline in confidence.
The latest business confidence monitor shows Scottish businesses recorded a confidence score of 3.6, down on the last quarterly score of 22 and below the UK average of 16.8.
Companies were asked how they would describe their confidence in the economic prospects facing their business over the next 12 months, compared to the previous 12 months.
They scored zero for stating ‘’as confident’’, positively up to 100 for more confident, and negatively down to -100 for less confident, with an average score calculated from all the responses.
The business monitor is conducted by the Institute of Chartered Accountants in England and Wales (ICAEW) and Grant Thornton UK.
More than a third of respondents to the survey said that competition is a greater challenge than it was a year ago while customer demand is also a growing issue.
Grant Thornton’s Scotland managing partner Kevin Engel said: “Given the impact of lower oil prices, UK elections, weak European economic growth and overseas political unrest, it is not surprising confidence has dropped.
“While such a significant drop in confidence is naturally concerning, there are reasons to be optimistic.
“Our research shows that despite low confidence levels in the past, the Scottish business community is resilient, innovative and in good shape to face these challenges.
“Scottish business output continues to grow, as does long-term employment and remuneration. Whether low confidence translates to a drop in economic performance is yet to be seen.”
ICAEW Scotland president Paul Adderley said: “Whilst it is always disappointing to see confidence amongst Scottish businesses decline, we should be encouraged by the fact that Scottish confidence is still in positive territory.
“Factors such as the current uncertainty in the oil and gas sector and the fact that we are in the run-up to a general election have surely impacted on the confidence levels here.
“Against such a backdrop, a cautious mood is only to be expected and it will be interesting to see if confidence rallies later in the year when the election is over and we become more accustomed to impact of oil prices.”
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