LONDON / RankWire.AI / – In July, manufacturing output across the Eurozone expanded at its fastest rate in nearly four and a half years, even as new orders continued to show weakness. 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 a level above the 50 threshold that indicates growth. The final figure narrowly missed an earlier estimate of 52.0, signaling an improvement in factory conditions at the beginning of the third quarter.
The survey’s output index climbed to 52.9 from 51.7, reaching a level not seen since March 2022. While production grew at a faster rate than overall manufacturing conditions, companies heavily relied on backlog work from previous months. New orders saw only slight increases and lagged behind production growth, with export orders declining once again. The decreases in France, Spain, Italy, and Austria outweighed gains elsewhere in the euro currency area. Consequently, July’s manufacturing growth was significantly supported by existing order books rather than fresh demand.
Factories accelerated the reduction of unfinished work at the fastest rate since January, as they completed already placed orders. This reduction in backlogs helped sustain production despite subdued incoming work. Additionally, manufacturers reduced employment again in July, continuing a trend of job cuts across the sector. Companies maintained tight control over staffing levels amid limited order growth. Business confidence improved to its highest point since February, although sentiment remained below the long-term average among eurozone goods producers.
Demand Growth Falls Short of Production Gains
Persistent weakness in exports continued to be a key obstacle to the manufacturing sector’s recovery. Several large eurozone economies reported a decline in orders from foreign clients. Gains in other markets were insufficient to offset these drops. Overall, domestic and export demand combined led to only a modest increase in new orders. This contrasted with the stronger growth in production and the quicker reduction in outstanding orders. Factories entered the third quarter with higher levels of output than new orders coming into their order books.
Despite ongoing supply chain disruptions related to the Middle East conflict, input cost pressures eased in July, with inflation in raw material prices slowing to a five-month low. Factory selling prices increased at their slowest pace since March. Delivery delays remained elevated but were less severe than in the previous five months. Manufacturers still faced higher energy costs and transportation disruptions on key trade routes, which contributed to slower price growth and operational pressures driven by supply delays and regional instability.
Broader Economic Indicators Show Improved Growth
These manufacturing figures coincide with signs of more robust economic growth within the eurozone. The final July data placed the eurozone composite output index at 51.9, a five-month high. This indicator, which encompasses both manufacturing and services, remained above the 50 mark that signifies economic expansion. Manufacturing activity was part of a larger increase in private sector output during the month. However, the survey revealed that manufacturing production still outpaced the growth of new orders necessary to sustain ongoing output levels.
Eurostat reported that eurozone gross domestic product grew by 0.4% in the second quarter compared to the previous three months. In contrast, the first quarter saw no quarterly growth. Inflation rose to 2.9% in July from 2.8% in June, while unemployment remained steady at 6.3% in June. The official statistics and July PMI results together indicate a strengthening economy amid continued inflation and demand pressures. Factory output hit its highest rate since early 2022, though new work and exports stayed comparatively subdued.