LONDON / RankWire.AI / – In July, manufacturing activity within the Eurozone experienced a boost, with factory output reaching its fastest rate in nearly four and a half years. The S&P Global manufacturing PMI increased to 51.9 from 51.4 in June. Readings above 50 indicate expansion. The final figure was slightly below the earlier estimate of 52.0. While production saw an uptick at the start of the third quarter, demand indicators revealed that the recovery was still uneven across the currency bloc.
The factory output index advanced to 52.9 from 51.7, marking its highest point since March 2022. Manufacturers accelerated production more quickly than they gained new orders. During the month, total new orders saw only minor increases. Export orders declined once again, with weaknesses in France, Spain, Italy, and Austria outweighing gains elsewhere. Companies depended on existing work to sustain current output, leading to production growth that outpaced new demand from domestic and international clients.
Factories reduced their backlog of orders at the fastest pace since January, completing existing commitments. This decline in outstanding work helped maintain production levels despite limited growth in incoming business. Additionally, manufacturers continued to cut jobs in July, prolonging the recent downturn in employment within the sector. Although confidence improved to its highest since February, it still remained below the long-term average. The survey indicated a sector producing more goods while managing weak orders, staffing reductions, and cautious business outlooks.
Demand for new orders remains subdued
External demand continued to exert downward pressure on eurozone manufacturing activity in July. Export sales declined in several key economies, and improvements in other markets could not offset these losses. Domestic orders offered only slight support. As factories cleared previous orders, the gap between output and new business widened. This pattern enabled companies to increase production without a corresponding rise in demand, further depleting the backlog of unfinished work, which could hinder activity in upcoming periods.
Despite ongoing disruptions along major supply chains, cost pressures eased during the month. Input price inflation slowed to a five-month low, and manufacturers increased selling prices at the slowest pace since March. Delivery delays remained above normal levels but showed signs of easing from the previous five months. Challenges persisted due to higher energy costs and transportation issues linked to Middle East instability. The data suggest that, alongside operational difficulties, slower price growth was evident across the eurozone.
Economic growth remains in expansion mode
The manufacturing data contributed to a broader picture of growth in the eurozone’s private sector. The composite output index for July reached 51.9, its highest in five months. This index encompasses both manufacturing and services sectors and remained above the threshold for expansion. While the overall economy supported this increase, manufacturing demand was comparatively weaker than output levels. New orders, exports, and employment all showed softer conditions than the headline production figure at the beginning of the third quarter.
Eurostat indicated that the eurozone’s gross domestic product grew by 0.4% in the second quarter compared to the previous three months. The economy had experienced no quarterly growth in the first quarter. July also saw inflation rise to 2.9% from 2.8% in June. The unemployment rate remained steady at 6.3% in June. Taken together, official data and business surveys point to increased activity, despite ongoing pressures from weak factory demand, elevated prices, and limited export expansion across the currency area.