The gloomy prediction comes in the latest state of trade survey by the Federation of Master Builders.
Employment levels fell again during the last quarter of 2012 and small builders predict more of the same this year.
Workloads decreased last year, and are expected to keep falling at least for the first half of 2013.
Housing was the only bright spot as the rate at which workloads and employment in the sector fell slowed in the fourth quarter of last year, with many specialist trades reporting the first rise in employment since early 2011.
But there were no positive signs in the non-residential sector where many firms said they may have to introduce price rises as overheads continue to eat into profit margins and the likelihood of lay-offs loomed.
Brian Berry, the FMB’s Chief Executive, said: “These figures reinforce what we already knew that 2012 was a very tough year for construction, and the outlook for 2013 is still bleak.
“The Government’s support for infrastructure spending is good but it needs to look at ways it can boost the building industry, not least the urgent need to build more new homes by freeing up land, easing planning red tape and by pushing investment through its new Business Bank.
“A VAT cut on building work to make homes more energy-efficient would also help provide an immediate boost for small builders and have the multiple benefits of boosting the economy, helping householders save money on their fuel bills and reducing carbon emission
“The construction industry is on a knife-edge as the Construction Skills Network predicts the slump will last at least a decade.
“Our members are perhaps more adaptable and resilient than some larger construction companies that rely heavily on major house-building or big infrastructure projects, but if the Government does not act swiftly and decisively to support SME builders – the backbone of the British construction industry – then we will undoubtedly see more firms going to the wall and job losses across the board in 2013.”
FMB latest State of Trade Survey at a glance:
Workloads continued to decrease in all sectors: The pace of contraction slowed down in the housing sectors, but the opposite was true for non-residential parts of the industry.
The workload indicator continues its downward trend across all regions and devolved nations.
Output prices, wages and salaries and material costs are all expected to go up in the coming six months: Although in the case of output prices and wages and salaries the vast majority of firms stated no change at 60 per cent and 77 per cent respectively.
SME employment continued to decline in Q4: The overall expected employment levels are predicted to fall at a slower rate over the next six months and specialist builders reported a positive balance for first time since the first quarter of 2011.