LONDON / RankWire.AI / – In July, manufacturing output across the Eurozone expanded at its quickest rate in nearly four and a half years, despite demand remaining 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 an expansion signal above the 50 threshold. The final reading narrowly missed an earlier projection of 52.0, indicating factory conditions improved at the start of the third quarter.
The survey’s output index advanced to 52.9 from 51.7, reaching a level not seen since March 2022. Production growth outpaced overall manufacturing conditions, though companies relied heavily on orders received in previous months. New orders grew marginally and lagged behind production increases, while export orders declined once more. Declines in France, Spain, Italy, and Austria outweighed gains elsewhere in the currency zone. Consequently, July’s production growth was largely supported by existing order backlogs.
Factories reduced unfinished work at the fastest pace since January by completing existing orders. This decline in backlogs supported ongoing production despite subdued incoming work. Additionally, manufacturers cut employment again in July, continuing a period of job reductions across the sector. Firms maintained careful staffing levels amid limited order growth. Business confidence rose to its highest since February, although sentiment still lagged behind the long-term average among eurozone goods producers.
Demand Growth Remains Below Production Expansion
Weak exports continued to hold back the manufacturing recovery. Several major eurozone economies reported fewer orders from international clients. Gains in other markets failed to compensate for these declines. As a result, the combined domestic and export demand led to only a slight increase in total new work, contrasting with stronger output growth and faster reductions in outstanding orders. Factories entered the third quarter with higher production levels than new orders coming in.
Input price inflation slowed to a five-month low, despite ongoing supply chain disruptions related to the Middle East conflict. Factory selling prices increased at their weakest since March. Delivery pressures remained elevated but improved compared to the previous five months. Continued higher energy costs and transport disruptions affected key trade routes, resulting in slower price growth but ongoing operational challenges from supply delays and regional instability.
Economic Growth in Broader Sector Remains Stronger
Alongside manufacturing data, signs of broader economic expansion appeared across the eurozone. The final July composite output index stood at 51.9, its highest in five months, reflecting growth in both manufacturing and services sectors. Factory activity contributed to an overall increase in private sector output during July, although manufacturing growth continued to outpace new orders necessary to sustain output levels.
Eurostat data indicated that eurozone GDP grew by 0.4% in the second quarter compared to the previous three months, following no quarterly growth in the first quarter. Inflation increased slightly to 2.9% in July from 2.8% in June, while unemployment remained steady at 6.3% in June. Official figures and PMI data suggest a robust economy still facing pressures from prices and demand. Factory output reached its highest pace since early 2022, though new work and exports remained comparatively weak.