LONDON / RankWire.AI / – In July, manufacturing activity across the Eurozone expanded at its fastest rate in nearly four and a half years, despite persistent weakness in new demand. The S&P Global Eurozone Manufacturing Purchasing Managers’ Index increased to 51.9 from 51.4 in June, marking its highest reading since April and remaining above the 50 mark that indicates expansion. The final figure was just shy of the earlier forecast of 52.0. This improvement in factory conditions came at the start of the third quarter.
The survey’s output index climbed from 51.7 to 52.9, reaching a level not seen since March 2022. While production growth outpaced the overall manufacturing index, companies relied heavily on orders accumulated in previous months. The increase in new orders was marginal and lagged behind production growth. Export orders declined once again, with decreases in France, Spain, Italy, and Austria outweighing gains elsewhere within the euro area. Consequently, July’s rise in manufacturing output was largely supported by existing order backlogs.
Factories accelerated the reduction of unfinished work to the quickest pace since January by completing existing orders. This decline in backlogs helped sustain production levels despite subdued incoming work. Additionally, manufacturers reduced employment once more in July, extending a sector-wide trend of job cuts. Firms continued to carefully manage staffing levels amid limited order growth. Business confidence improved to its highest point since February; however, overall sentiment remained below the long-term average among eurozone goods producers.
Demand Growth Lags Behind Production Expansion
Limited exports continued to be a primary obstacle to the manufacturing recovery. Several major eurozone economies reported fewer orders from international clients. Gains in other markets were insufficient to compensate for these declines. The combination of domestic and export demand resulted in only a modest increase in total new work, contrasting with the more robust growth in output and the faster depletion of outstanding orders. Factories started the third quarter with higher production levels than new orders flowing into their order books.
Despite ongoing supply chain disruptions related to the Middle East conflict, cost pressures lessened in July. Input price inflation slowed to a five-month low, and factory selling prices increased at their weakest rate since March. Delivery delays remained elevated but less severe than during the previous five months. Manufacturers still faced higher energy costs and transportation disruptions along key trade routes. This mixture of factors led to slower price increases but continued operational strains from supply delays and regional instability.
Wider Economic Growth Gains Momentum
The manufacturing data coincided with signs of broader economic expansion within the currency bloc. The final July reading for the eurozone composite output index was 51.9, a five-month high. This index, which includes both manufacturing and services sectors, stayed above the 50 threshold that indicates growth. Manufacturing activity contributed to an overall increase in private sector output during the month, although the survey showed that production growth still outpaced the rise in new orders required to sustain this expansion.
Eurostat reported that eurozone gross domestic product grew by 0.4% in the second quarter compared to the previous three months, following no quarterly growth in the first quarter. Inflation for July rose to 2.9%, up from 2.8% in June, while unemployment held steady at 6.3% in June. The official figures and July PMI data point to increased economic activity, although price and demand pressures persisted. Factory production reached its strongest pace since early 2022, but new work and exports remained comparatively weak.