South Africa’s manufacturing output rose 3,7% year-on-year in January, improving further on the 3,2% increase achieved in December, Statistics South Africa (Stats SA) reported on Thursday.

Absa Capital senior economist Ian Marsberg noted that while the overall headline number had been somewhat weaker than what was anticipated, the underlying momentum in the recovery seemed to be proceeding.

He said that when looking at the new vehicle sales and the trend within the vehicle-manufacturing sector, for example, these continued to suggest that the recovery remained in tact.

Further gains in manufacturing activity were likely to continue, said Marsberg, noting that the recovery of the sector in the first half would continue at a relatively slow pace, but would become stronger towards the second half of the year.

According to Stats SA, a 34,2% increase in output by the motor vehicles, parts and accessories and other transport equipment division, had been the main contributor to the overall year-on-year increase in output.

Further, the basic iron and steel, nonferrous metals products, metal products and machinery division had seen a 13,1% year-on-year increase in production, while the furniture and other manufacturing division had raised output by 16,3% year-on-year.

However, this was offset, to some extent, by production declines in the remaining seven divisions, with the biggest decline of 0,6% recorded by the textiles, clothing, leather and footwear division.

Meanwhile, overall manufacturing output for the three months ended January increased by 4,1%, compared with output in the three months ended October 2009.

Eight of the ten manufacturing divisions reported higher production quarter-on-quarter.

Meanwhile, Investec economist Kgotso Radira warned that while the manufacturing sector had shown some improvements in recent months, the outlook still remained uncertain, as this remained dependent on the pact of a recovery in external demand.

"Higher production costs from the electricity price increases could hamper the pace of recovery and the sector’s
competitiveness," said Radira.