LONDON / RankWire.AI / – In July, manufacturing activity across the Eurozone showed signs of strength as factory output hit its fastest rate in nearly four and a half years. The S&P Global manufacturing PMI increased to 51.9 from 51.4 in June. A reading above 50 indicates expansion. Although the final figure was slightly below the initial estimate of 52.0, production levels improved at the beginning of the third quarter. Nevertheless, demand indicators revealed that the economic recovery was still uneven within the currency bloc.
The index measuring factory output climbed to 52.9 from 51.7, marking the highest level since March 2022. Manufacturers ramped up production at a faster pace than they secured new orders. During the same period, total new orders saw only a modest increase. Export orders declined once again as weakness in France, Spain, Italy, and Austria outweighed gains elsewhere. Companies relied heavily on existing work to sustain current output, resulting in production growth outpacing fresh demand from both domestic and international clients.
In July, factories reduced their backlog of work at the quickest rate since January as they completed pending orders. This decline in backlogs helped maintain production levels despite limited growth in new business. Additionally, manufacturers cut jobs again, continuing the recent decline in employment within the sector. While business confidence improved to its strongest level since February, it remained below the long-term average. The survey illustrated a sector producing more goods while still grappling with weak orders, staffing reductions, and cautious outlooks for future business.
Demand from abroad remains restrained
During July, external demand continued to exert downward pressure on eurozone manufacturing. Export sales fell across several key economies, and improvements in other markets could not offset these declines. Domestic orders offered only limited support. As factories worked through earlier commitments, the gap between output and new business widened, allowing production to increase without a corresponding rise in demand. This pattern also contributed to a reduction in unfinished work, which could affect activity levels in subsequent periods.
Despite ongoing disruptions along major supply routes, input cost pressures eased during the month. Inflation of input prices slowed to a five-month low. Manufacturers raised their selling prices at the slowest pace since March. Delivery delays continued to be above normal, though pressures have eased over the past five months. Elevated energy costs and transportation issues related to instability in the Middle East persisted as operational challenges. Overall, the data pointed to a moderation in price growth amid ongoing supply chain disruptions faced by producers across the eurozone.
Broader economic indicators point to expansion
The manufacturing figures are part of a wider trend indicating growth in the private sector. The eurozone composite output index reached 51.9 in July, its highest point in five months. This measure, which encompasses both manufacturing and services, stayed above the threshold for expansion. The broader economic growth supported the stronger manufacturing output. However, demand for manufacturing remained softer than production levels. During the opening month of the third quarter, new orders, exports, and employment all experienced weaker conditions compared to the overall production index.
Eurostat reported that the eurozone gross domestic product increased by 0.4% in the second quarter compared to the previous three months. This growth followed no quarterly expansion in the first quarter. Inflation for the year rose to 2.9% in July from 2.8% in June, while the unemployment rate held steady at 6.3% in June. Together, official statistics and business surveys indicate ongoing activity, although factory demand remains weak, prices are elevated, and export growth continues to face limitations across the currency area.