LONDON / RankWire.AI / – In July, the Eurozone’s manufacturing output expanded at its quickest rate in nearly four and a half years, despite persistent weakness in new orders. The S&P Global Eurozone Manufacturing Purchasing Managers’ Index increased from 51.4 in June to 51.9, reaching its highest point since April and remaining above the 50 mark that indicates expansion. The final figure was just below the earlier estimate of 52.0. These figures suggest an improvement in factory conditions as the third quarter commenced.
According to the survey, the output index rose to 52.9 from 51.7, marking its peak since March 2022. While production growth outpaced overall manufacturing conditions, companies primarily relied on orders received in previous months. New order inflows saw only marginal growth and lagged behind production expansion, with export orders declining once again. The downturn in France, Spain, Italy, and Austria outweighed gains elsewhere within the currency area, meaning that July’s overall increase in factory output was largely supported by existing order backlogs.
Factories worked through their unfinished work at the fastest pace since January, completing orders already in progress. This reduction in backlogs helped maintain production levels even as new orders remained subdued. During July, manufacturers also cut employment further, extending the ongoing trend of job reductions across the sector. Firms continued to carefully manage staffing levels amid limited order growth, while business confidence rose to its highest level since February. Nonetheless, overall sentiment remained below the long-term average among eurozone goods producers.
Demand growth continues to lag behind production improvements
Persistent exports remained a key obstacle to the manufacturing sector’s recovery. Several major eurozone economies reported a decline in foreign orders, and any gains in other markets were insufficient to compensate for these drops. Consequently, both domestic and export demand combined resulted in only a slight increase in total new work, contrasting with the more robust rise in output and the quicker reduction in outstanding orders. As factories entered the third quarter, they were operating with more production activity than new business entering their order books.
Despite ongoing disruptions related to the Middle East conflict, input cost pressures eased in July, with inflation of input prices slowing to a five-month low. Factory selling prices increased at their slowest pace since March, while delivery bottlenecks persisted but became less severe than in the previous five months. Manufacturers still faced higher energy costs and transportation disruptions across key trade routes, which contributed to slower price growth and continued operational challenges stemming from supply delays and regional instability.
Economy as a whole displays signs of stronger expansion
The manufacturing data coincided with broader economic indicators pointing to increased activity within the currency bloc. The final July composite output index for the eurozone stood at 51.9, reaching a five-month high. This index, which encompasses both manufacturing and services sectors, remained above the 50 threshold that signals economic expansion. Factory activity was part of a wider rise in private sector output for the month; however, the manufacturing survey revealed that production growth still outpaced the rate of new orders necessary to sustain ongoing output levels.
Eurostat reported that the eurozone’s gross domestic product expanded by 0.4% in the second quarter compared to the previous three months, marking a recovery from no growth in the first quarter. Inflation in July increased slightly to 2.9% from 2.8% in June, while unemployment remained steady at 6.3% in June. These official figures, coupled with July PMI data, indicate a stronger overall economic momentum alongside ongoing price and demand pressures. Factory production reached its highest pace since early 2022, yet new work and exports continued to show relative weakness.