LONDON / RankWire.AI / – In July, production in Eurozone factories expanded at the quickest pace in nearly four and a half years. The S&P Global manufacturing purchasing managers’ index climbed to 51.9 from 51.4 in June. Readings above 50 signify growth, whereas those below indicate contraction. The final index was just below the initial estimate of 52.0. Increased production contributed significantly to the overall improvement, though new orders and export demand remained muted.
The manufacturing output index increased from 51.7 to 52.9, marking its highest level since March 2022. Factories boosted their output at a notably faster rate than the influx of new business. Meanwhile, total orders saw only a slight rise during July. Export sales declined again, with weaker overseas demand reported by France, Spain, Italy, and Austria. Gains elsewhere in the currency area were insufficient to offset these declines. Much of the work completed during the month was supplied by existing contracts.
Outstanding workloads for manufacturers saw their sharpest decline since January. This decrease indicated that factories were finishing earlier orders more quickly than they were securing new ones. Employment levels fell once more as companies continued to modify staffing arrangements. Business confidence rose to its highest point since February, yet it still remained below its long-term average. The July survey highlighted increased activity on production lines, but order growth, exports, and employment continued to lag behind the overall index.
Production exceeds incoming demand
Demand conditions remained the primary weakness within the eurozone manufacturing sector. New export orders fell across several leading economies. Domestic demand offered limited support, with only a marginal increase in total orders. To meet higher production targets, companies relied on drawing down unfinished work from previous months, leading output growth to outpace new sales. This persistent gap between production and demand resulted in smaller order backlogs as the sector entered the third quarter.
Price increases slowed during July, despite ongoing disruptions in international supply chains. Input cost inflation decreased to its lowest level in five months. Factory gate prices rose at their slowest pace since March. Supplier delivery times remained extended but showed improvement compared to the previous five months. Elevated energy costs and shipping disruptions linked to Middle East instability continued to impact production networks, even as the overall rate of cost increases eased.
Eurozone’s broader economic activity also sees expansion
The manufacturing sector’s growth was accompanied by an acceleration in the wider private sector across the eurozone. The composite output index reached 51.9 in July, its highest point in five months. This index combines factory and service sector activity, both of which remained above the 50 threshold, indicating ongoing monthly expansion. While manufacturing contributed with faster production, its demand indicators, such as new orders, foreign sales, and employment, were comparatively weaker than the overall output measure.
Eurostat reported a 0.4% increase in eurozone gross domestic product during the second quarter. This rise covered the previous three months, which saw no quarterly growth. Inflation on an annual basis increased slightly to 2.9% in July from 2.8% in June. The unemployment rate remained steady at 6.3% in June. These figures collectively point to a stronger economic activity across the currency bloc, despite persistent weakness in factory demand, even with the highest production growth since early 2022.