LONDON / RankWire.AI / – In July, manufacturing output in the Eurozone expanded at its quickest rate in nearly four and a half years, even as new orders remained subdued. The S&P Global Eurozone Manufacturing Purchasing Managers’ Index increased from 51.4 in June to 51.9. This marked its highest level since April and kept the index above the 50 mark, indicating expansion. The final reading narrowly missed the earlier estimate of 52.0. Factory conditions showed improvement at the start of the third quarter.
The survey’s output index rose from 51.7 to 52.9, reaching its peak since March 2022. Production growth outpaced the overall manufacturing conditions, but companies relied heavily on work received in previous months. New orders grew only marginally and lagged behind the pace of production. Export orders declined once more, with decreases in France, Spain, Italy, and Austria outweighing gains elsewhere in the currency zone. Consequently, July’s production increase was largely supported by existing order books.
Factories reduced unfinished work at the fastest rate since January, as they completed existing orders. This decline in backlogs helped sustain production levels despite subdued incoming work. Additionally, manufacturers cut employment again during July, extending a period of job reductions across the industry. Companies continued managing staffing levels carefully while order growth remained limited. Business confidence improved to its highest point since February, although overall sentiment still remained below the long-term average among eurozone goods producers.
Demand growth lags behind manufacturing expansion
Persistent weak exports continued to restrain the manufacturing recovery. Several major eurozone economies reported fewer orders from international clients. Gains in other markets were insufficient to offset these declines. Domestic and export demand together resulted in only a slight increase in total new work. This contrasted with the stronger rise in output and the faster reduction in outstanding orders. Factories entered the third quarter with more production activity than new orders entering their order books.
Despite ongoing disruptions linked to the Middle East conflict, input cost pressures eased in July. Inflation in input prices slowed to a five-month low, and factory selling prices increased at their weakest pace since March. Delivery delays remained high but less severe than during the previous five months. Manufacturers still faced elevated energy costs and transportation disruptions along key trade routes. This combination resulted in slower price growth but continued operational pressures from supply delays and regional instability.
Economic growth in the wider region shows signs of strength
The manufacturing data came alongside broader indicators of economic expansion across the currency bloc. The final July figures placed the eurozone composite output index at 51.9, its highest in five months. The index, which covers both manufacturing and services sectors, remained above the 50 threshold that signals growth. Manufacturing activity contributed to a broader increase in private sector output during the month. However, the survey also indicated that production growth continued to outpace the growth in new orders necessary to sustain output levels.
Eurostat reported that eurozone gross domestic product grew by 0.4% in the second quarter compared to the previous three months. The economy recorded no quarterly growth in the first quarter. Inflation in July rose to 2.9%, up from 2.8% in June. Unemployment remained steady at 6.3% in June. The official data and July PMI figures showed stronger economic activity alongside persistent pressure from prices and demand. Factory production hit its highest pace since early 2022, but both new work and exports remained relatively weak.