LONDON / RankWire.AI / – Eurozone factories boosted their output in July at the quickest pace seen in nearly four and a half years, according to S&P Global. The manufacturing purchasing managers’ index rose from 51.4 in June to 51.9, with readings above 50 signaling expansion and those below indicating contraction. The final figure was slightly below the initial estimate of 52.0. While increased production contributed to the overall improvement, demand for new orders and exports remained muted.
The manufacturing output index climbed from 51.7 to 52.9, reaching its highest point since March 2022. Factories expanded their output at a much faster rate than new orders entered the system. Overall orders saw only minimal growth in July, and export sales fell again, with France, Spain, Italy, and Austria reporting weaker overseas demand. Gains elsewhere within the euro area could not offset these declines. Much of the work completed during the month was fulfilled through existing contracts rather than new business.
Outstanding workloads for manufacturers decreased at the fastest pace since January, indicating factories were finishing previous orders more quickly than they could replace them. Employment figures declined once more as producers continued to adjust their staffing levels. Business confidence improved to its highest point since February, yet it remained below its long-term average. The July survey highlighted stronger activity levels in production lines, even as growth in new orders, exports, and employment lagged behind the overall index.
Production Outpaces New Business
Weak demand persisted as the primary challenge in the eurozone manufacturing sector. New export orders declined across several major economies. Domestic demand contributed only marginally, leading to a slight increase in total orders. To meet rising production targets, factories drew down on unfinished work from previous months, resulting in output growth surpassing incoming sales. This trend left the sector with smaller order backlogs as it entered the third quarter.
Price growth slowed in July, although disruptions across global supply chains persisted. Inflation in input costs decreased to its lowest level in five months, and factory gate prices rose at their slowest pace since March. Despite some improvement, supplier delivery times remained longer than usual, although they showed signs of easing from the previous five months. Ongoing issues such as rising energy costs and shipping disruptions linked to instability in the Middle East continued to impact production networks, even as the overall rate of cost increases slowed.
Eurozone’s Broader Economy Also Shows Signs of Expansion
The manufacturing sector’s recovery was accompanied by faster growth in the wider eurozone private sector. The composite output index hit 51.9 in July, marking its highest level in five months. This measure combines activity across manufacturing and service sectors. It remained above the 50 threshold, indicating ongoing expansion for the month. While manufacturing drove growth through higher production, its demand indicators, including new orders, export sales, and employment, showed more subdued improvements compared to the overall output measure.
Eurostat reported a 0.4% increase in eurozone gross domestic product during the second quarter. This growth reflected a recovery from a flat third quarter of the previous year. Additionally, annual inflation rose to 2.9% in July from 2.8% in June, while the unemployment rate remained steady at 6.3% in June. These figures collectively point to a strengthening economy across the currency area, despite continued weakness in factory demand even as manufacturing output experienced its strongest growth since early 2022.