LONDON / RankWire.AI / – In July, manufacturing activity across the Eurozone accelerated to its highest point in nearly four and a half years, even though demand remained subdued. The S&P Global Eurozone Manufacturing Purchasing Managers’ Index increased to 51.9 from 51.4 in June. This marked its strongest figure since April and maintained its position above the 50 threshold indicating expansion. The final reading was just below the earlier forecast of 52.0. Manufacturing conditions showed improvement at the beginning of the third quarter.
The survey’s output index rose to 52.9 from 51.7, reaching the highest level since March 2022. Production grew at a faster rate than overall manufacturing conditions, although companies still relied heavily on work ordered in previous months. New orders saw only marginal growth and lagged behind the pace of production. Export orders decreased once again, with declines in France, Spain, Italy, and Austria outweighing gains elsewhere within the currency area. Consequently, July’s rise in production was largely supported by existing order backlogs.
Factories reduced unfinished work at the fastest rate since January, as they completed existing orders. This decline in backlogs helped sustain production despite weak incoming work. During July, manufacturers also cut employment again, extending a period of job cuts across the sector. Companies continued to carefully manage staffing levels while order growth remained limited. Business confidence rose to its highest level since February, though it still remained below the long-term average among eurozone goods producers.
Demand growth remains subdued compared to production increases
Weak exports continued to be a key obstacle hindering the manufacturing recovery. Several major eurozone economies reported fewer orders from international clients. Gains in other markets were insufficient to offset these declines. Overall, domestic and export demand together resulted in only a marginal increase in total new work. This contrasted with the stronger output growth and the quicker reduction in outstanding orders. Factories entered the third quarter with more production activity than new orders entering their order books.
Cost pressures eased in July despite ongoing supply chain disruptions related to the Middle East conflict. Input price inflation slowed to a five-month low. Meanwhile, factory selling prices increased at their slowest pace since March. Delivery delays persisted but became less severe compared to the previous five months. Manufacturers still faced higher energy costs and transport disruptions across key trade routes. The combination of these factors resulted in slower price growth, yet operational pressures from supply delays and regional instability continued to challenge production.
Broader economic indicators show a stronger growth trend
The manufacturing data coincided with signs of broader economic expansion within the currency bloc. The final July figure for the eurozone composite output index stood at 51.9, reaching a five-month high. This index includes manufacturing and services sectors and remained above the 50 mark that distinguishes expansion from contraction. Manufacturing activity contributed to an overall increase in private sector output during the month. Nonetheless, the survey revealed that production growth still outpaced the growth of new orders necessary to sustain output levels.
Eurostat data indicated that eurozone gross domestic product expanded by 0.4% in the second quarter compared to the previous three months. The economy experienced no quarterly growth in the first quarter. Inflation in July increased to 2.9% from 2.8% in June. Unemployment remained steady at 6.3% in June. Both official statistics and July PMI figures reflect a more active economic environment alongside ongoing pressures on prices and demand. Factory output reached its strongest pace since early 2022, yet new work and exports continued to be relatively weak.