A worker uses a cloth to rub down the body shell of a BMW 3 Series automobile on the production line at the Bayerische Motoren Werke (BMW) AG plant in Rosslyn, South Africa. BMW AG's car-assembly plant in South Africa is doing its bit to help the German carmaker edge toward a global target to supply all its production with renewable energy: It's getting some of its power from cow manure. Photographer: Kevin Sutherland/Bloomberg

Johannesburg Manufacturing production increased by 1.9 percent in February year on year compared with February 2015, Statistics SA said yesterday.

This is in contrast to the 2.6 percent decline in production in January.

Read: Obstacles loom for SA economy

Investec economist Kamilla Kaplan said yesterday that the 1.9 percent increase exceeded market expectations of a 2.1 percent decline. Production increases in the petroleum (4.2 percent), food (3.8 percent) and wood manufacturing (4.7 percent) sectors underpinned the overall manufacturing increase, Kaplan said.

But she said a majority of manufacturers still expected operating conditions to deteriorate over the next year. She said weak demand, rising operating costs and infrastructure constraints had inhibited manufacturing production.

Kaplan said the international purchasing managers’ index and world trade volume indicators signalled renewed loss of momentum in the first quarter of this year.

“Weaker foreign demand conditions remain a drag on South Africa’s manufactured goods export potential,” Kaplan said.

On the local front, a combination of low commodity prices and the drought conditions had subdued domestic demand, she added.

“Growth in the consumptive sectors is also modest amid tighter fiscal and monetary policies,” she said.

Econometrix chief economist Azar Jammine said yesterday that higher manufacturing production was in line with the substantial increase in the manufacturing PMI in February from 43.7 points to 47.1 points.

“One (would) like to think that this outcome is yet another example of the publication of indicators, which suggests that even though the South African economy may be weak, it is not collapsing.

“One would also like to think that the upturn in manufacturing reflects the benefits of the lower rand in boosting exports and encouraging import replacement,” Jammine said.

He said he was, however, reluctant to become overly optimistic, because the improved production figures could be due to the extra working day resulting from the leap year, “for which statistical processes may not fully adjust”.

NKC African Economics analyst Bart Stemmet said yesterday that cumulative manufacturing production was still down 0.3 percent year on year so far this year.

“Soft demand, both domestically and from abroad, and a mining sector struggling to keep its head above water, suggest that the outlook for the manufacturing sector will not drastically change for the better anytime soon,” he said.

Jammine said the positive manufacturing data did little to change his view that the interest rates would rise further over the coming 12 months.

In March, the interest rate rose 25 basis points to 7 percent.