Inflation-adjusted manufacturing value added is expected to shrink by 0.7% during 2012, with a rebound only expected in 2013, Iraj Abedian, economist and compiler of the manufacturing quarterly bulletin says.
A recession in the Eurozone, and a possible easing in Chinese growth were identified as reasons behind the forecast.
The Manufacturing Circle, in partnership with Abedian, recently released the first quarter 2012 manufacturing bulletin, which found that business confidence in the sector remained stable in the quarter.
It noted, however, that despite the current stable outcome, major challenges remained ahead for the sector.
Given the recent performance of manufacturing production, Abedian expected a dim contribution to first quarter gross domestic product (GDP) by the sector.
Statistics SA was scheduled to release the first quarter GDP figures at the end of May.
Inflation-adjusted manufacturing value added is forecast to rebound and expand by an annual rate of about 3.9% in 2013. The downside risk to this outlook, Abedian said, was the rand exchange rate.
Manufacturers have highlighted the volatile rand as a major challenge for manufacturing exports going forward.
Abedian said the recent weakness in the rand against major currencies would be of "no help" to local manufacturers as its weakness was driven by eurozone developments.
"It will reverse itself in due course," Abedian said.