Local builders are entering their fourth successive year of decline, according to the latest Federation of Master Builders trade survey.
One-third of builders said they see no alternative but to cut jobs over the next 12 months as workloads are expected to continue to fall.
Government cuts are making matters worse, it added, with more than half of builders reporting a fall in public repair and maintenance work.
The FMB added that cuts to social housing were already having a big impact on builders.
Richard Diment, FMB Director-General, said: "The construction sector has still not reached the bottom of the most savage recession for the industry in living memory.
"Our survey shows a sharp increase in those expecting workloads to contract once again in the first quarter of 2011."
Confidence fell in all regions of the country with Yorkshire and Humberside the least pessimistic about the future. Firms in Scotland and West Midlands reported the biggest fall in confidence after orders fell heavily in the last quarter of the year.
Diment warned: "The Government is pinning its hopes of economic recovery on the creation of new jobs in the private sector but its policies are having exactly the opposite effect in the building sector."
He predicted that the increase in the rate of VAT earlier this month will cost the construction sector nearly 7,500 jobs this year alone.
Cuts in public sector spending on social housing are having a particularly adverse impact with nearly half of building companies reporting that work in this sector had fallen.
Diment, who with the FMB supports the Get Britain Building campaign, added that the construction sector had the potential to generate a sustained recovery.
"The construction sector has the potential to build Britain out of recession and we know that for every £1 spent on construction output generates a total of £2.84 in total economic activity,
"If this could be coupled with expenditure on infrastructure projects as well as tackling the growing housing crisis the Government would be building the real foundations for a sustained economic recovery."
