South African private sector activity contracted sharply in January as output fell due to lower sales, a survey showed on Wednesday.

The S&P Global South Africa Purchasing Managers' Index (PMI) fell to 47.4 in January from 49.9 in December, its lowest since July 2021. A reading above 50 shows growth.

"New orders dropped solidly, leading to a marked cutback in output, with weakness especially observed among service sector businesses," said David Owen, senior economist at S&P Global Market Intelligence.

The findings suggest companies struggled to win back customers at the start of the year, which could affect growth in the first quarter, Owen said.

Despite the downturn, the survey showed domestic supply chains improved, with some respondents suggesting that the drop-off in demand provided vendors with additional capacity and eased bottlenecks.