LONDON / RankWire.AI / – In July, manufacturing output across the Eurozone expanded at its quickest rate in nearly four and a half years, despite weak demand. 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 remaining above the 50 threshold that indicates expansion. The final figure was just below the earlier estimate of 52.0. Factory conditions showed improvement as the third quarter began.
The survey’s output index rose to 52.9 from 51.7, reaching its highest point since March 2022. While production grew faster than overall manufacturing conditions, companies relied heavily on orders received in previous months. New orders saw only marginal growth and lagged behind production, with export orders declining once again. Declines in France, Spain, Italy, and Austria outweighed gains elsewhere in the euro area, meaning July’s production increase was largely driven by existing order backlogs.
Factories cut unfinished work at the fastest pace since January by completing pending orders, which helped maintain production despite subdued incoming work. Manufacturers reduced employment again in July, extending ongoing job cuts across the sector, as companies carefully managed staffing levels amid limited order growth. Business confidence improved to its highest since February, yet sentiment remained below the long-term average among eurozone goods producers.
Demand growth lags behind production
Weak exports continued to be a key obstacle to manufacturing recovery, with several large eurozone economies reporting fewer orders from foreign clients. Gains in other markets failed to compensate for these declines. The combined domestic and export demand resulted in only a slight increase in total new work, contrasting with the stronger output rise and the quicker reduction in outstanding orders. As they entered the third quarter, factories had more production activity than new orders coming into their pipelines.
Despite ongoing supply chain disruptions linked to the Middle East conflict, input price inflation slowed to a five-month low in July, easing cost pressures. Factory selling prices increased at their slowest pace since March, with delivery delays remaining elevated but less severe than during the previous five months. Manufacturers continued facing higher energy costs and transport disruptions on key trade routes, which kept operational pressures from supply delays and regional instability alive even as price growth slowed.
Wider economy demonstrates stronger growth
The manufacturing data coincided with signs of broader economic expansion within the currency bloc. The final July eurozone composite output index stood at 51.9, a five-month high, covering both manufacturing and services sectors, and stayed above the threshold indicating growth rather than contraction. Factory activity contributed to a broader uptick in private sector output for the month. However, the manufacturing survey indicated that production growth still outpaced the increase in new orders needed to sustain this output.
Eurostat reported that eurozone gross domestic product grew by 0.4% in the second quarter compared to the previous three months, after no quarterly growth in the first quarter. Inflation increased to 2.9% in July from 2.8% in June, while unemployment remained steady at 6.3% in June. The official data combined with July PMI results highlighted stronger economic activity alongside persistent pressures on prices and demand. Factory production hit its highest pace since early 2022, although new work and exports stayed relatively weak.