LONDON / RankWire.AI / – In July, Eurozone factory output expanded at its fastest rate in nearly four and a half years, even as new demand continued to be weak. The S&P Global Eurozone Manufacturing Purchasing Managers’ Index increased to 51.9 from 51.4 in June. This marked its highest reading since April and kept the index above the 50 threshold indicating expansion. The final figure was slightly below an earlier estimate of 52.0. Manufacturing conditions improved at the beginning of the third quarter.
The survey’s output index rose to 52.9 from 51.7, reaching its highest point since March 2022. Production growth outpaced overall manufacturing activity, although companies relied heavily on orders received in previous months. Meanwhile, new orders increased only marginally and lagged behind production growth. Export orders declined once again, with decreases in France, Spain, Italy, and Austria outweighing gains elsewhere in the eurozone. Consequently, July’s rise in production was largely supported by existing order books.
Factories reduced their backlog of 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 sector. Companies continued to manage staffing levels cautiously 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 lags behind production increases
Weak exports remained a key constraint on the manufacturing recovery. Several large eurozone economies reported fewer orders from foreign clients. Gains in other markets failed to compensate for these declines. Overall, domestic and export demand combined to produce only a slight increase in new work. This contrasted with the stronger rise in output and the faster reduction in outstanding orders. Factories started the third quarter with higher production levels than new orders entering their order books.
Cost pressures eased in July despite ongoing disruptions to supply chains linked to the Middle East conflict. Input price inflation slowed to a five-month low, and factory selling prices increased at their weakest rate since March. Delivery pressures remained elevated but less severe than in previous five months. Manufacturers continued to face higher energy costs and transportation disruptions across key trade routes. These factors contributed to slower price growth, while supply delays and regional instability kept operational pressures high.
Wider economic growth remains robust
The manufacturing data arrived alongside indications of broader economic expansion within the currency bloc. The final July reading for the eurozone composite output index reached 51.9, a five-month high. This indicator covers both manufacturing and services, remaining above the 50-level that separates growth from contraction. Factory activity contributed to a wider increase in private sector output during the month. However, the manufacturing survey indicated that production growth still outpaced the growth in new orders needed to sustain output levels.
Eurostat reported that eurozone gross domestic product increased by 0.4% in the second quarter compared to the previous three months. The economy had experienced no quarterly growth in the first quarter. Inflation rose to 2.9% in July from 2.8% in June. Unemployment remained steady at 6.3% in June. The official figures and July PMI data together point to a stronger economic activity amid ongoing price and demand pressures. Factory output reached its fastest pace since early 2022, although new work and exports continued to stay relatively weak.
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