Despite the decline in index points, but still managed to close 2014 marginally above the neutral 50-point mark at 50.2.
The PMI stayed below 50 in the second and third quarters and reported an average of 51.2 index points in the fourth quarter, significantly higher than the average of 48.2 index points recorded in the first nine months of the year.
Business activity index, a subcomponent of the PMI, dropped by 7.7 points from November. The decline is said to be attributed to load shedding and mandatory cutbacks by large industrial users of Eskom.
(READ MORE: S.Africa's Eskom implements rolling power outages)
“This suggests that output is failing to gain traction despite a normalisation of domestic demand conditions after protracted strikes in the platinum and steel manufacturing sectors earlier in 2014,” said Abdul Davids, head of research at Kagiso Asset Management.
The new sales order index, another subcomponent within the PMI, also fell from 55 index points in November to 52.6 points in December.
(READ MORE: Kagiso PMI up to best level since August 2013)
The price index moderated and fell to its lowest level since July 2012, this signifies a major slowdown in the rate of input cost increases. Davids attributes the moderation to the sharp drop in the international oil price.
“Encouragingly, the index measuring expected business conditions in six months’ time recovered from a slump in November, and the PMI leading indicator edged above 1 for the first time in 2014, suggesting an acceleration in production going forward as new sales marginally outstripped current inventories,” the report said.