LONDON / RankWire.AI / – In July, manufacturing output within the Eurozone expanded at its quickest rate in nearly four and a half years, even as new demand remained subdued. The S&P Global Eurozone Manufacturing Purchasing Managers’ Index increased to 51.9 from 51.4 in June, 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 initial estimate of 52.0. Manufacturing conditions showed early signs of improvement at the beginning of the third quarter.
The survey’s output index moved up to 52.9 from 51.7, reaching the highest point since March 2022. Production growth outpaced overall manufacturing activity, though companies relied heavily on orders received in previous months. New orders saw only marginal gains and lagged behind production. Export orders declined once more, with decreases in France, Spain, Italy, and Austria outweighing gains elsewhere in the currency bloc. As a result, July’s production increase was largely supported by existing order books.
Factories reduced their backlogs at the fastest rate since January, completing existing orders. This reduction in unfinished work helped sustain output despite weak incoming demand. Additionally, manufacturers decreased employment again in July, continuing a period of job cuts across the sector. Companies maintained cautious staffing levels while order growth remained limited. Business confidence improved to its highest level since February, although it stayed below the long-term average among eurozone goods producers.
Production Outpaces Demand Growth
Continued weak exports remained a key obstacle to manufacturing recovery. Several major eurozone economies reported fewer orders from foreign clients. Gains in other markets were insufficient to offset these declines. Overall, domestic and export demand combined resulted in only a slight increase in new work, contrasting with the stronger rise in production and the faster reduction in outstanding orders. Factories entered the third quarter with higher production levels than new orders coming in.
Despite ongoing disruptions related 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 weakest pace since March, and delivery delays, while still significant, became less severe than in the previous five months. Manufacturers faced persistent higher energy costs and transport disruptions along key trade routes. These factors resulted in slower price growth, yet operational pressures from supply delays and regional instability persisted.
Wider Economic Indicators Show Accelerated Growth
The manufacturing data coincided with signs of stronger overall economic activity across the currency union. Final July figures showed the eurozone composite output index at 51.9, a five-month high. This index, which combines manufacturing and services, remained above the 50 mark that distinguishes expansion from contraction. Manufacturing contributed to a broader rise in private sector output during the month. However, the survey indicated that production growth still exceeded the pace of new orders needed to sustain output levels.
Eurostat revealed that eurozone gross domestic product increased by 0.4% in the second quarter compared to the previous three months, after no quarterly growth was recorded in the first quarter. Inflation rose to 2.9% in July from 2.8% in June, while unemployment remained steady at 6.3% in June. The official data and July PMI results demonstrate a strengthening economy amid ongoing price and demand pressures. Factory production reached its fastest pace since early 2022, though new work and exports continued to be relatively weak.