The January data marked the first sub-50 reading since July last year.
The PMI is a composite index, calculated as a weighted average of five individual sub-components: New Orders (30 per cent), Output (25 per cent), Employment (20 per cent), Suppliers’ Delivery Times (15 per cent) and Stocks of Purchases (10 per cent).
(READ MORE: S.Africa’s December Kagiso PMI drops)
Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show deterioration.
According to the report, South Africa’s private sector companies reported further declines in output and new orders at the beginning of 2015 amid reports of slow market conditions and weak demand.
“The rates of contraction were little-changed from December’s marginal pace. New export orders placed with South African private sector companies also fell in January, thereby ending a four-month period of continuous growth,” read part of the report.
The report said the decline was modest.
“With output and new orders falling for a second consecutive month, there was little appetite for companies to hire additional workers in January,” added the PMI report.
“Consequently, employment levels were broadly stagnant. Meanwhile, backlogs of work fell at the strongest rate since June of last year.”
David Faulkner, economist at HSBC, said the country’s PMI indicated the economic activity struggled at the start of 2015 with business conditions deteriorating for the first time since July 2014.
“In recent months, headline PMI readings have pointed towards fading growth momentum, suggesting South Africa’s growth prospects in 2015 remain fragile,” Faulkner.
“There was a broad-based weakening in South Africa’s economic environment. Output, new orders, and inventories experienced marginal contractions in January; employment stagnated, while suppliers’ delivery times deteriorated for a third successive month.”
He added that backlogs of work continued to fall, signalling increases in spare capacity, while the deterioration in export orders, after a period of sustained growth, suggests external demand is unlikely to compensate for weak domestic demand conditions.
“Input costs increased at the start of the year, while output prices were little changed, however overall, inflation indicators remain significantly below their long-term averages, in line with expectations of continued disinflation for producers and consumers.”