Although this marked the third successive y/y increase, on the month production was still weak, contracting by a seasonally adjusted 1.5% m/m compared with a decline of 0.6% m/m in January.
"The February reading was worse than market expectations for an increase of 0.5%m/m," said Stanlib economist Kevin Lings.
He added the expectations for a further rise in manufacturing during February was based on an increase in the Kagiso PMI index to 60 index points in February.
"The relationship between the domestic PMI and manufacturing activity appears to have broken down somewhat in the past couple of months.
Worryingly, the Kagiso PMI index eased back noticeably in March 2010 to 55.6 index points from 60.4 in February 2010," he said.
Investec Economist Kgotso Radira noted that growth in manufacturing production is not broad based across all sub-sectors, indicating that the recovery remains fragile and will be gradual throughout the year.
The main drivers of growth were motor vehicles, parts and accessories, basic iron and steel sub-sectors. However, these increases were counteracted by decreases in five other sub-sectors.
Nedbank economists noted that stronger export sales on the back of the global recovery remain the key driver of the recovery in manufacturing production.
They added the global economy should continue to set the pace for local manufacturing, but some improvement in local demand should help selective industries later this year.
Lings added that manufacturing production is extremely volatile on a month-on-month basis, but the sector is not having a good start to the year, after an impressive recovery in the second half of 2009.
He said the initial boost to production during the period from September 2009 to December 2009 was helped enormously by an unwind of the inventory overhang that prevailed in late 2008 and in the first half of 2009.
"These excess inventory levels have now most probably been eliminated and therefore a sustained rise in manufacturing output is heavily dependent on a sustained increase in domestic final demand (consumer spending and fixed investment spending) as well as (hopefully) exports," he said.
However, while the easing in production growth came as a surprise, economists are not concerned that the recovery in the manufacturing sector is faltering.
"Indeed, it is plausible to argue that manufacturers may have been cautious so as not to accumulate inventories excessively in fear that demand may disappoint," said Standard Bank Economist Danelee van Dyk.
She noted the recent cut in interest rates will go a long way in assuaging such fears. Encouraging signs are developing regarding a self-sustaining global growth environment, as the global services industry has posted gains not seen since before the onset of the global recession.
"This is important in so far as securing a foundation for production advances in the manufacturing sector in the second half of the year, when the withdrawal of global stimulus packages will test the endurance of the global recovery.
"In the face of a strong rand exchange rate, the sector will have to critically evaluate productivity metrics and wage costs in mitigating the negative impact of the rand on export earnings.
"High wage awards, such as currently demanded by NUMSA, may be obstructive to the sector's growth prognosis."
Lings concluded that given recent signs of improvement in the local PMI readings, and some pick-up in world demand, he expects manufacturing activity levels to continue to expand, but it is vital that there is a more robust and sustained increase in domestic final demand/fixed investment spending to provide the basis for a sustained and more significant expansion of manufacturing output.
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