LONDON / RankWire.AI / – In July, manufacturing activity within the Eurozone experienced a boost, with factory output reaching its quickest 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 picked up at the start of the third quarter. Nonetheless, demand signals revealed that the recovery remained uneven across the currency bloc.
The factory output index advanced to 52.9 from 51.7, marking the highest level since March 2022. Manufacturers accelerated production even as new orders grew only marginally during the month. Export orders contracted once again, as weak performances in France, Spain, Italy, and Austria overshadowed gains elsewhere. Firms depended heavily on existing work to sustain current output, causing production growth to outpace fresh demand from both domestic and international clients.
Factories expedited the reduction of backlogs at the fastest pace since January by completing pending orders. This decrease in outstanding work supported production levels despite sluggish new business inflows. July also saw further job cuts, continuing the recent employment downturn in the sector. Although business confidence improved to its highest level since February, it still remained below the long-term average. The survey highlighted a sector manufacturing more goods while simultaneously grappling with weak orders, staffing reductions, and cautious outlooks.
Demand for new orders stays subdued
In July, external demand continued to dampen eurozone manufacturing activity. Export sales declined in several key economies, with improvements in other markets unable to fully offset these setbacks. Domestic orders provided only limited support. The gap between output and new business widened as factories processed existing commitments, enabling increased production without corresponding demand. This scenario also diminished the volume of unfinished work available for subsequent periods, thereby impacting future activity.
Despite ongoing disruptions along major supply routes, input cost pressures eased during the month, with inflation slowing to a five-month low. Manufacturers increased prices at the slowest rate since March. Delivery delays, although still above normal levels, showed signs of easing from the previous five months. Challenges persisted with higher energy costs and transportation issues tied to instability in the Middle East. Overall, the data pointed to decelerated price growth amid operational difficulties facing producers across the eurozone.
The wider economy continues to grow
The factory sector’s performance was part of a broader rise in private sector activity, with the eurozone composite output index reaching 51.9 in July, its highest in five months. This measure, which combines manufacturing and services, remained above the expansion threshold. The stronger production figures were supported by an overall economic expansion, although manufacturing demand remained weaker than output. During the first month of the third quarter, new orders, exports, and employment all experienced softer conditions compared to the headline production index.
Eurostat reported that the eurozone’s gross domestic product grew by 0.4% in the second quarter compared to the previous three months. The economy had shown no quarterly growth during the first quarter. In July, annual inflation increased to 2.9% from 2.8% in June, while the unemployment rate remained steady at 6.3% in June. Combined, official statistics and business surveys point to a more active economy amid persistent challenges such as weak factory demand, rising prices, and limited export growth across the currency area.