FEARS over the health of the economy have knocked business confidence in the region back to a two-and-a-half year low.
New research from Lloyds TSB Commercial showed that firms continued to scale back investment and recruitment amid concerns about wavering demand in domestic markets.
The twice-yearly report, which canvasses the views of around 70 firms in the region, said business confidence had fallen to its lowest level since mid-2009, when the economy was starting to emerge from recession.
But businesses remained upbeat about prospects in export markets both inside and outside of Europe, where trade has remained resilient in recent months.
Lloyds said the positive feedback from exporters was a ray of sunshine on an otherwise gloomy horizon.
Gareth Oakley, North-east regional director for Lloyds TSB Commercial, said: “It is understandable that businesses are keeping the brakes on investment, given the volatile economic climate.
“But in order to break the cycle of dwindling confidence leading to slower growth, it is crucial that firms in the region do whatever they can to maximise opportunities at home or overseas.
“Although export markets are certainly strained, there are still opportunities for growth in countries outside Europe for those businesses in a position to seize them.”
The survey showed that the North-east was one of the least optimistic regions in the UK, with only Scotland and Wales recording lower confidence levels.
Construction and healthcare firms were the sectors worst affected, although manufacturers in the region were bullish about prospects for 2012.
The generally downbeat survey chimes with other data predicting a difficult year ahead.
The majority of respondents to a new Ipsos MORI survey said the economy will get worse this year due to the Eurozone crisis, the UK’s budget deficit and rising unemployment.
Meanwhile, the British Chambers of Commerce warned of an “inevitable” slowdown in the Eurozone and urged the Government to do more to support UK firms.
John Longworth, director general of the BCC, said: “Ministers have been nowhere near radical enough and have not been able to tackle the culture that deems business and wealth creation as negative.
“The Government can restore UK business confidence. Facilitating the flow of credit to viable businesses, improving our planning system, and an overhaul of our infrastructure and skills system will tackle the barriers to expansion.”