LONDON / RankWire.AI / – In July, manufacturing output across the Eurozone experienced its fastest growth in nearly four and a half years, despite persistent weakness in new orders. The S&P Global Eurozone Manufacturing Purchasing Managers’ Index increased from 51.4 in June to 51.9, marking its highest level since April and maintaining a reading above the 50 threshold that indicates expansion. The final figure was just shy of the earlier estimate of 52.0. Conditions within factories improved at the start of the third quarter.
The survey’s output index advanced to 52.9 from 51.7, reaching its highest point since March 2022. Production accelerated more rapidly than overall manufacturing conditions, although companies relied heavily on work scheduled in previous months. New orders saw only slight growth and lagged behind the pace of production. Export orders declined once more, with decreases in France, Spain, Italy, and Austria offsetting gains elsewhere in the currency area. As a result, July’s rise in production was largely supported by existing order backlogs.
Factories worked through unfinished business at the fastest rate since January, completing orders already in progress. This reduction in backlogs helped sustain output even as incoming work remained subdued. Furthermore, manufacturers reduced employment once again in July, continuing a period of job cuts across the sector. Companies carefully managed staffing levels while demand growth remained limited. Business confidence improved to its highest level since February, yet it stayed below the long-term average among eurozone goods producers.
Demand growth remains sluggish compared to production
A key obstacle to the manufacturing recovery was the continued weakness in exports. Several major eurozone economies reported fewer orders from international clients. Gains in other markets were insufficient to compensate for these declines. The combined domestic and export demand resulted in only a slight increase in total new work. This contrasted with the stronger rise in factory output and the faster reduction in backlog orders. As factories entered the third quarter, production activity outpaced the volume of new orders coming into their pipelines.
Cost pressures eased in July, despite ongoing supply chain disruptions related to the Middle East conflict. Input price inflation slowed to a five-month low, while factory selling prices increased at their weakest rate since March. Delivery challenges remained high but lessened compared to the previous five months. Manufacturing firms continued to face higher energy costs and transport disruptions along key trade routes. These factors resulted in slower price growth alongside ongoing operational pressures from supply delays and regional instability.
Economic growth broadens across the eurozone
The manufacturing data was accompanied by signs of stronger overall economic activity within the currency bloc. The final July eurozone composite output index stood at 51.9, a five-month peak. This measure, which includes manufacturing and services sectors, remained above the level indicating growth rather than contraction. Factory activity contributed to a broader increase in private sector output during the month. Nonetheless, the survey indicated that production growth still outpaced the rise in new orders necessary to sustain output levels.
Eurostat reported that the eurozone gross domestic product grew by 0.4% in the second quarter compared to the previous three months. This followed no quarterly growth in the first quarter. Inflation in July increased to 2.9% from 2.8% in June, while unemployment held steady at 6.3% in June. Both the official statistics and July PMI data pointed to a more active economy amid ongoing pressures on prices and demand. Factory output reached its strongest pace since early 2022, though new work and exports remained comparatively subdued.