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Construction firms should expect a buoyant 2014, but the first half of the year is likely to remain tough for main contractors as the supply chain dictates terms, analyst KPMG has said.

In a market forecast for the New Year, Richard Threlfall, KPMG鈥檚 head of infrastructure, building and construction, said higher GDP projections of 1.4% for this year and 2.4% for 2014 were indicative of the pace at which the recovery was accelerating and that the promise of a sustained uplift in the economy would drive growth across construction.

He said: 鈥淭he construction industry usually overreacts like no other to the promise of better times. That reaction can already be seen in our housing market where demand is far outstripping the ability of housebuilders to deliver but it will be seen soon across other industry segments as well.鈥�

However, Threlfall had a warning for main contractors: 鈥淲e predict the first half of the year will be tough, not because demand will be slow but because it will pick up too quickly for an industry which has lost 20% of its capacity over the last five years and where consequently the supply chain is weak.

鈥淎t the moment we are observing shortages of bricks, blocks, timber, aggregates and also of skilled labour across the sector.

鈥淢ore capacity in the supply chain will be opening up every day, but it will be the second half of the year at the earliest before supply catches up with demand.

鈥淯ntil then the power will remain with the supply chain. Tier 1 contractors will continue to feel the squeeze, particularly those who chased volume during the recession and were left with wafer-thin margins.

鈥淲e don鈥檛 expect any more major failures - those who survived the recession are all too big to fail - but life will remain tough in the short term.鈥�

Threlfall added that the availability of finace was no longer such major constraint on project delivery and that 鈥渨e expect during the year to see increasing breadth and depth in financing capacity in the market鈥�.

鈥淭here are already some signs of competition between bank and capital markets solutions re-emerging on some projects, though we are long way off the rock-bottom pricing of 2006/7 and few hope we head back to that unsustainable territory.

鈥淲ithin the capital markets, expect growing interest from direct investors, including insurance and pension funds, putting pressure on infrastructure funds.

鈥淲hat does seem clear is that by the end of next year we will have 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.

鈥淏y that point some nervousness about the impending election may creep in but whether that creates another hiatus in an industry that historically lurches from boom to bust remains to be seen.鈥�