Manufacturing, the economy’s second-biggest sector, should perform much better this year but is unlikely to contribute meaningfully to employment, given the difficulties that still plague it, says Stewart Jennings, chairman of the Manufacturing Circle, an industry body.

Europe remains a key export market for locally produced goods and unemployment in the region rose to a record level last November as the financial crisis and tougher austerity measures deepened its economic decline.

Lower domestic and international demand, coupled with strikes for higher wages by workers in the third quarter of last year, had negatively affected South African manufacturers’ output.

Despite these problems, Mr Jennings said on Tuesday that the worst was over.

"I want to be optimistic because the last three months of last year were much better. We also saw the PMI (purchasing managers’ index) edging towards 50," Mr Jennings said. Any figure below 50 on the PMI — an indicator of the economic health of the manufacturing sector — signals a contraction.

But Mr Jennings said manufacturers were not optimistic about jobs prospects this year — a blow to South Africa’s 4.7-million unemployed people. "I do not see us generating a large number of jobs this year because there is already a lot of spare capacity and, of course, there’s the threat of ever-increasing imports," he said.

Despite remaining below the desired 50-index-point level, the Kagiso PMI rose by 2.4 points in November to 49.5.

Figures due out on Thursday are expected to show that manufacturing extended modest gains in November, supported mainly by a weaker rand and the conclusion of strikes in sectors of the economy linked to manufacturing.

Progress in growing the sector this year would depend on an improvement in a combination of factors over the coming months, Mr Jennings said.

These included a further weakening of the rand, some movement towards finding a solution to the eurozone crisis, and the adoption of measures to address cheap imports into South Africa.

The outlook for SA’s main trading partners — including the US and the eurozone — is for sluggish to very slow recovery, which does not bode well for South African manufacturers.

While the US economy is expected to continue recovering this year, the forecasts for the eurozone are not as optimistic.

Eurozone gross domestic product is expected to contract by 2.5% this year and 1% next year, according to research by Capital Economics.

This suggests that demand in the region is likely to remain subdued, which bodes ill for sectors of the local economy that rely heavily on export revenue.

"The major downside risk facing the South African economy at the moment is the crisis in Europe," Frost & Sullivan economist Craig Parker said yesterday. "We have strong trade relations with Europe, but our financial ties to global markets make us vulnerable.

"This has resulted in us showing very slow growth in 2012 compared to other African countries with fewer financial ties to Europe."

Mr Parker forecast that the South African economy would grow at about 3% to 3.1% this year. Statistics SA has yet to release growth figures for last year, but expectations are that the economy grew by about 2.5%.

Mr Jennings said that if the expectation of 3% economic growth this year was realised, this would benefit many sectors of the economy and be positive for the creation of jobs.

Lower demand from traditional export markets had forced local manufacturers to look elsewhere for opportunities, he said.

"Africa is very important for us because it offers a lot of opportunities. Many of our manufacturers have already started penetration into Africa," Mr Jennings said.

Manufacturers are also set to continue their fight against the high electricity tariffs proposed for this year. The Manufacturing Circle believes that the tariff increase should be linked to the inflation rate.

Eskom has applied for tariffs to be increased by 16% a year over a three-year period.

The National Energy Regulator of SA will conduct public hearings on the application from next Tuesday until the end of the month, across the country. Manufacturers intend making their voices heard at the hearings.