LONDON / RankWire.AI / – In July, manufacturing activity across the Eurozone expanded at its fastest rate in nearly four and a half years, despite ongoing weakness in new orders. The S&P Global Eurozone Manufacturing Purchasing Managers’ Index increased from 51.4 in June to 51.9, marking its strongest reading since April and maintaining its position above the 50 mark that indicates growth. The final data was just below the earlier estimate of 52.0. At the beginning of the third quarter, factory conditions showed notable improvement.
The survey’s output index advanced from 51.7 to 52.9, reaching its highest point since March 2022. Production growth outpaced the overall manufacturing conditions, although many firms relied heavily on work accumulated in previous months. New orders saw only marginal increases and lagged behind production growth. Export orders declined once again, with decreases in France, Spain, Italy, and Austria outweighing gains elsewhere in the euro area. As a result, July’s rise in production was mainly supported by existing order backlogs.
Factories decreased unfinished work at the quickest rate since January, by completing existing orders. This reduction in backlogs contributed to sustained production even as incoming work remained subdued. Additionally, manufacturers reduced employment again in July, extending a period of job cuts across the sector. Companies continued managing staffing levels cautiously, given limited order growth. Business confidence improved to its highest level since February, though it still remained below the long-term average among eurozone goods producers.
Production outpaces demand growth
Weak exports continued to be a significant obstacle for the manufacturing recovery. Several large eurozone economies reported a decline in foreign orders. Gains in other markets were insufficient to offset these decreases. Overall, domestic and export demand combined resulted in only a slight increase in new business. This contrasted with the faster rise in output and the more rapid reduction in outstanding orders. Factories entered the third quarter with higher production levels than new orders coming in.
Despite ongoing supply chain disruptions linked to the Middle East conflict, input cost pressures eased in July. Inflation for input prices slowed to its lowest level in five months, while factory selling prices increased at their slowest pace since March. Delivery delays persisted but became less severe than during the previous five months. Manufacturers still faced higher energy costs and transportation disruptions along key trade routes. These factors collectively resulted in slower price increases, but supply delays and regional instability continued to exert operational pressure on factories.
Economic indicators point to broader growth momentum
The manufacturing data coincided with signs of stronger economic expansion across the euro area. The final July reading of the eurozone composite output index was 51.9, a five-month high. This index encompasses both manufacturing and services and remained above the 50 threshold that differentiates growth from contraction. Factory activity contributed to a broader increase in private sector output for the month. However, the manufacturing survey indicated that production growth still surpassed the pace of new order inflows needed to sustain output levels.
Eurostat data showed that the eurozone’s gross domestic product increased by 0.4% in the second quarter compared to the previous three months. The economy had experienced no quarterly growth in the first quarter. Meanwhile, annual inflation rose to 2.9% in July from 2.8% in June. Unemployment remained steady at 6.3% in June. These official figures, alongside July PMI results, indicate a stronger economic performance amidst ongoing pressures on prices and demand. Factory output reached its highest growth rate since early 2022, yet new work and exports remained relatively weak.