LONDON / RankWire.AI / – In July, factory output across the Eurozone expanded at its quickest rate in nearly four and a half years, even as demand remained subdued. The S&P Global Eurozone Manufacturing Purchasing Managers’ Index increased to 51.9 from 51.4 in June. This was the strongest reading since April and kept the index above the 50 mark that indicates growth. The final figure was just shy of an earlier projection of 52.0. Manufacturing conditions showed signs of improvement as the third quarter began.
The survey’s output index climbed from 51.7 to 52.9, reaching its highest point since March 2022. While production accelerated faster than overall manufacturing activity, companies primarily relied on work from previous months. New orders grew only marginally and lagged behind the pace of production, with exports declining once more. The downturn in France, Spain, Italy, and Austria outweighed gains elsewhere in the euro area. Consequently, the increase in July’s production was largely driven by existing order backlogs.
Factories worked through unfinished orders at the fastest rate since January, as they completed existing commitments. This reduction in backlogs helped sustain output even amid weak new demand. Additionally, manufacturers cut employment once again in July, extending a period of job reductions across the sector. Companies continued to carefully manage staffing levels amid limited order growth. Business confidence improved to its highest level since February, although it remained below the long-term average among eurozone goods producers.
Demand growth lags behind production increases
Persistent exports continued to be a major obstacle to manufacturing recovery. Several large eurozone economies reported fewer orders from international clients. Gains in other markets were not enough to offset those declines. As a result, domestic and export demand together yielded only a slight increase in total new work. These figures contrasted with the stronger rise in output and the quicker reduction in outstanding orders. Factories entered the third quarter with higher production levels than new orders coming into their pipelines.
Cost pressures eased in July despite ongoing supply chain disruptions linked to regional conflicts in the Middle East. Input price inflation slowed to a five-month low, and factory selling prices increased at their slowest rate since March. Delivery delays remained elevated but became less severe compared to the previous five months. Manufacturers faced continued higher energy costs and disruptions in key trade routes, resulting in slower price growth alongside operational pressures from supply delays and regional instability.
Broader economic indicators point to stronger growth
The manufacturing data coincided with signs of broader economic expansion across the eurozone. The final July eurozone composite output index stood at 51.9, reaching a five-month high. This measure, which encompasses both manufacturing and services, remained above the 50 threshold that distinguishes growth from contraction. Factory activity contributed to a wider uptick in private sector output during July. However, the manufacturing survey indicated that production growth continued to outpace the growth of new orders needed to sustain output levels.
Eurostat reported that the eurozone gross domestic product increased by 0.4% in the second quarter compared to the previous three months. There was no quarterly growth in the first quarter. Inflation rose to 2.9% in July from 2.8% in June, while unemployment remained steady at 6.3% in June. The official data and July PMI figures depict an economy showing increased activity alongside ongoing pressures from prices and demand. Factory production reached its fastest pace since early 2022, yet new work and exports stayed relatively weak.