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'Buoyant' year for construction follows a tough start

Consultancy firm KPMG predicts a buoyant and competitive 2014 for construction, but warns the outlook is challenging for the first part of the year.Conditions will be difficult in the first few months as the sector has lost 20 per cent of its capacity and there are weaknesses in the supply chain. Shortages of materials such as bricks and timber and a shortage of skilled labour are likely to pose problems.Demand is to remain strong due to the pace of the economic recovery, with GDP growth forecast to reach 2.4 per cent next year. KPMG points out the construction industry normally overreacts to improving economic prospects and that demand in the housing market is already outstripping supply.The firm predicts spare capacity will continue to open up but it will only be in the second half of the year that the gap between supply and demand will be bridged."Tier one contractors will continue to feel the squeeze, particularly those who chased volume during the recession and were left with wafer-thin margins," states Richard Threlfall, KPMG's head of infrastructure, building and construction.An upsurge in demand is also likely to occur as a result of the electoral cycle. The government has unveiled substantial investment in infrastructure projects in advance of the election. Projects that were shelved at the beginning of the parliamentary term are now being given the go-ahead.KPMG predicts that finance will be readily available in 2014 and there is already increasing capacity in the market. Competition between banks and capital markets is starting to take place, while growing interest from direct investors within capital markets will put pressure on infrastructure funds.The report concludes that by the end of next year there will be a "much more buoyant and competitive market across infrastructure and construction, with a clearer sense of pipeline, especially in energy, and more opportunities across all sectors". There may be uncertainty surrounding the general election but the effects of this are difficult to forecast at this stage. 

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