LONDON / RankWire.AI / – In July, the manufacturing sector within the Eurozone experienced a boost, with factory output reaching its fastest rate in nearly four and a half years. The S&P Global manufacturing PMI increased to 51.9 from 51.4 in June. A figure above 50 indicates expansion. The final data was slightly below the earlier projection of 52.0. As the third quarter commenced, production showed signs of improvement; however, demand signals pointed to an uneven recovery across the currency bloc.
The index measuring factory output rose to 52.9 from 51.7, reaching its highest point since March 2022. While manufacturers ramped up production, new business acquisitions grew more slowly. During the month, total new orders experienced only marginal growth. Export orders declined once more, as weaknesses in France, Spain, Italy, and Austria overshadowed gains elsewhere. Companies predominantly relied on existing work to maintain output levels, resulting in production growth outpacing fresh demand from both domestic and international clients.
Order backlogs were reduced at the quickest pace since January, as firms completed pending work. This decline in outstanding work helped sustain production levels despite limited growth in incoming orders. The manufacturing sector also continued to cut jobs in July, extending the recent employment downturn. Confidence among firms improved to its strongest point since February but remained below the long-term average. The survey highlighted a sector producing more goods amid ongoing challenges such as weak orders, staffing reductions, and cautious outlooks for business prospects.
Demand for new orders remains muted
Demand from abroad persisted as a dampening factor for Eurozone manufacturing throughout July. Export sales fell across several key economies, with improvements in other markets failing to fully offset these declines. Domestic order levels provided only modest support. The gap between production and new business widened, as factories worked through existing commitments. This pattern enabled companies to boost output without a corresponding rise in demand, further depleting unfinished work inventories that could support activity in subsequent periods.
Despite ongoing disruptions along major supply routes, cost pressures eased during the month. Input prices inflation slowed to a five-month low, and manufacturers increased selling prices at the weakest pace since March. Delivery delays remained above normal, although the pressures had lessened compared to the previous five months. Rising energy costs and transportation issues linked to instability in the Middle East continued to pose challenges. Data indicated slower price growth coupled with persistent operational hurdles faced by producers throughout the Eurozone.
Economic growth broader than manufacturing
The manufacturing data was part of a larger trend indicating growth in the private sector. The eurozone composite output index reached 51.9 in July, marking its highest level in five months. This index, which combines manufacturing and services, remained above the expansion threshold. Overall economic activity supported the stronger manufacturing figures, yet demand for manufacturing remained relatively subdued compared to production. During the initial month of the third quarter, new orders, exports, and employment all exhibited weaker conditions than the overall production index.
Eurostat reported a quarterly GDP growth of 0.4% in the second quarter, following no growth in the first quarter. Inflation increased from 2.8% in June to 2.9% in July. The unemployment rate held steady at 6.3% in June. Both official data and business surveys indicated a strengthening in activity levels, though factory demand remained weak, prices stayed elevated, and export growth was limited across the currency area.