South Africa's purchasing managers' index (PMI) fell sharply in January, dipping below the key 50 level for the first time in 15 months and suggesting the manufacturing sector was contracting, Investec said yesteray.

The seasonally adjusted PMI index fell to 49,3, from 53,2 in December – the first time it was below 50 since October 2003, when it touched 47,3, Investec said.

Any figure below 50 shows contraction, while a reading above signals growth.

"Except for December's small increase, the latest reading extends the sustained decline in the index since October last year," said Andre Roux, head of fixed income at Investec Asset Management.

"More importantly, the index has now fallen to below the critical level of 50, suggesting a mild contraction in manufacturing is under way," he said.

Manufacturing accounts for about 16% of Africa's biggest economy, and emerged from a prolonged recession in the first quarter of 2004. Official statistics show that output from the sector fell in October and November.

Roux said the manufacturing expansion seen during the first three quarters of 2004 appeared to have run out of steam, hampered by a global slowdown and strength in the rand currency, which appreciated by 18,5% versus the dollar last year.

"Manufacturers are evidently under pressure in export and import competing markets, with the strong rand and soft global growth taking their toll. Buoyant domestic demand conditions are not able to offset these negatives," Roux said. – Reuters.