Charities in Scotland have "given up on the idea of growth" and gone into "survival mode", according to the Scottish Council for Voluntary Organisations.
The SCVO’s Third Sector Forecast for 2017, published today, identifies a "squeezed middle" of medium-sized charities that are particularly worried about the dual pressures of financial uncertainty and increasing demand.
The research, which is based on a survey of 404 SCVO member organisations carried out in November and December, found that 76 per cent of respondents thought the financial situation for charities in Scotland would worsen over the coming year, with less than 1 per cent thinking the situation would improve.
This is coupled with almost three-quarters of charities saying they expected demand to increase in the coming year, which rises to more than 80 per cent among larger charities.
The SCVO report says the "need to do more with less", which it says has been a defining feature for the sector in recent years, will only intensify.
The survey showed that almost a third of charities that responded to the survey said they had grown in 2016, compared with 13 per cent that said they had shrunk.
The SCVO report says there has been a "noticeable drop" in the number of charities planning to carry out activities such as developing new projects or recruiting new volunteers.
"The picture is of a sector that is surviving, but not thriving," the report says. "The sector is keeping its head above water, but many now feel unable to take risks or invest in new activities and strengthen sustainability, and some report cutting back services."
It says that one in four respondents rated their confidence in their organisation’s future as low or very low, with the figure rising to one in three among charities in the middle income brackets, defined as between £25,000 and £1m a year.
John Downie, director of public affairs at the SCVO, said: "Our research clearly shows that Scotland's third sector has given up on the idea of growth and has gone into survival mode.
"Organisations feel they will have to do more with less as demand for services increases at a time when funding streams are squeezed.
"There is a strong expectation of growing competition to secure unstable hand-to-mouth funding and this is hampering the sector's ability to develop."