LONDON / RankWire.AI / – In July, the Eurozone’s manufacturing sector experienced notable growth, with factory output hitting its highest 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 results slightly missed the earlier forecast of 52.0. While production picked up at the beginning of the third quarter, demand signals indicated that the recovery was still uneven across the currency union.
The output index in manufacturing rose to 52.9 from 51.7, marking its peak since March 2022. Manufacturers accelerated production more rapidly than they gained new orders. During the month, the growth in total new orders was marginal. Export orders declined once again, with weaknesses in France, Spain, Italy, and Austria outweighing improvements elsewhere. Companies depended on existing work to maintain current levels of output, leading to production growth that outpaced new domestic and international demand.
Factories worked through existing backlogs at the fastest pace since January, reducing outstanding work as they completed previous orders. This decline in backlogs helped sustain production levels despite limited growth in incoming orders. July also saw further job cuts in manufacturing, extending the recent trend of employment decline. Confidence among firms rose to its highest point since February but still remained below the long-term average. The survey revealed a sector producing more goods amid ongoing weak orders, staffing reductions, and cautious business outlooks.
Order intake remains subdued
External demand continued to hinder eurozone manufacturing in July. Export sales declined across several key economies, while improvements in other markets were insufficient to offset these declines. Domestic orders only offered modest support. As factories processed earlier commitments, the gap between production and new orders widened, enabling firms to increase output without a corresponding rise in demand. This also meant less unfinished work was available to support activity in subsequent periods.
Cost pressures showed signs of easing despite ongoing disruptions along major supply routes. Input price inflation slowed to a five-month low. Manufacturers increased selling prices at the slowest pace since March. Delivery delays remained elevated but showed some relief compared to the previous five months. Persistent higher energy costs and transportation issues related to instability in the Middle East continued to affect firms. The data points to slower price growth amid operational difficulties across the eurozone manufacturing landscape.
Overall economic activity indicates expansion
The manufacturing data is part of a broader trend of rising private sector activity. The eurozone composite output index reached 51.9 in July, its highest in five months. This measure, which combines manufacturing and services, remained above the growth threshold. The broader economic growth supported the stronger production figures. However, demand within manufacturing stayed weaker than output. During the first month of the third quarter, new orders, exports, and employment all showed softer conditions compared to the overall production index.
Eurostat reported a 0.4% quarterly growth in eurozone gross domestic product in the second quarter, following no growth in the first quarter. Inflation increased to 2.9% in July from 2.8% in June. The unemployment rate remained steady at 6.3% in June. The official statistics and business surveys combined reveal a picture of increased activity alongside ongoing challenges such as weak factory demand, rising prices, and limited export growth across the currency area.
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