The latest quarterly national accounts reveal the amount received in tax receipts fell to minus £338 million over the 12-month period.
When a geographical share of UK offshore and overseas economic activity is included, Scottish gross domestic product (GDP) is estimated at £159 billion during the year, or £29,554 per person, amounting to growth of 1.7%.
Growth in onshore GDP was mostly driven by consumer spending, with positive contributions also made by government, capital investment and exports.
However, a widening of the onshore trade deficit due to the increasing value of imports had a negative impact.
Economy Secretary Keith Brown said the latest statistics “highlight the challenges facing the Scottish economy”.
He said: “Current headwinds relating to the oil and gas sector and Brexit uncertainty are continuing to weigh on growth.
“Despite this, recent business survey evidence shows positive signals for manufacturing and other sectors whilst Scotland’s onshore output per head continues to be higher than the UK average excluding London. This demonstrates that our economic fundamentals remain strong.
“The Scottish Government is taking action to support the labour market, particularly surrounding the oil and gas sector.
“Whilst the statistics also show that recent growth was mostly driven by consumer spending, we are doing all we can to support growth across the wider economy through initiatives such as our £500 million Scottish Growth Scheme to stimulate investment in new and early-stage businesses, and investing in our £6 billion infrastructure plan.”
Analysis by economist John McLaren said the decline in North Sea revenues contrasted with a period of relative stability between 2005-2012 when Scottish offshore oil revenues did not fall below £6 billion in any single year.
Mr McLaren said: “The latest national accounts data shows that 2016 was a disappointing year for the Scottish economy.
“Much of this was connected to a further decline in the contribution of the North Sea.
“Furthermore, the Scottish trade balance for 2016 has worsened by £1.6 billion from 2015 and the savings ratio is at a record low.
“As a result, worries persist over the economy’s future growth potential and over the self-financed element of the Scottish budget.”