LONDON / RankWire.AI / – In July, manufacturing output across the Eurozone expanded at its quickest rate in nearly four and a half years, despite ongoing sluggish demand. The S&P Global Eurozone Manufacturing Purchasing Managers’ Index increased to 51.9 from 51.4 in June. This reading marked the highest since April and maintained the index above the 50 threshold that indicates growth. The final figure was just below the earlier forecast of 52.0. Manufacturing conditions showed improvement at the beginning of the third quarter.
The survey’s output index advanced to 52.9 from 51.7, reaching the highest point since March 2022. While production growth outpaced overall manufacturing conditions, companies relied heavily on work received in previous months. New orders saw only marginal increases and lagged behind production growth. Export orders declined once more, with downturns in France, Spain, Italy, and Austria outweighing gains elsewhere in the currency zone. Consequently, July’s production increase was largely supported by existing order backlogs.
Factories accelerated the reduction of unfinished work at the fastest pace since January, completing orders already in process. This decline in backlogs helped sustain overall production levels even as incoming new work remained subdued. During July, manufacturers also continued to cut employment, extending a period of job reductions across the sector. Companies remained cautious about staffing levels, even as order growth stayed limited. Business confidence improved to its highest since February, though it still remained below the long-term average among eurozone goods producers.
Manufacturing output outpaces demand growth
Persistent exports remained a key obstacle to the manufacturing sector’s recovery. Several major eurozone economies reported a decline in orders from international clients. Gains in other markets were insufficient to offset these decreases. As a result, domestic and export demand combined to produce only a modest rise in total new work. This contrasted with the more robust increase in output and the quicker reduction in outstanding orders. Factories entered the third quarter with higher production levels than the amount of new business coming into their order books.
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 delays persisted but were less severe than during the previous five months. Manufacturers continued to face higher energy costs and transportation disruptions along key trade routes. These factors contributed to slower price growth alongside operational pressures from supply delays and regional instability.
Overall economic expansion shows signs of strength
The manufacturing data coincided with broader signs of economic growth across the eurozone. The final July composite output index stood at 51.9, a five-month high. This measure, encompassing both manufacturing and services sectors, remained above the 50 threshold that marks expansion. Manufacturing activity was part of a wider increase in private sector output during the month. However, the survey indicated that production growth still outpaced the rise in new orders needed to sustain output levels.
Eurostat reported that the eurozone’s gross domestic product increased 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 rose to 2.9% from 2.8% in June, while unemployment remained steady at 6.3% in June. The official statistics and July PMI data indicated a strengthening economy amid ongoing price and demand pressures. Factory production hit its highest pace since early 2022, yet new work and exports continued to be relatively weak.