LONDON / RankWire.AI / – In July, manufacturing activity across the Eurozone expanded at its quickest pace in nearly four and a half years, driven by factories reducing their order backlogs. The S&P Global manufacturing purchasing managers’ index increased to 51.9 from 51.4 in June. Values above 50 signal growth, whereas those below indicate contraction. The final figure was just shy of the initial estimate of 52.0. While stronger production supported the overall rise, new orders and export demand stayed muted.
The manufacturing output index moved up to 52.9 from 51.7, reaching its highest point since March 2022. Factories accelerated their output more rapidly than new orders were coming in. During July, total orders saw only a slight increase, and export sales declined again, with France, Spain, Italy, and Austria reporting weaker overseas demand. Gains in other parts of the currency zone failed to offset these declines, with much of the completed work during the month being supplied by existing contracts.
Outstanding workloads decreased at the fastest rate since January, reflecting factories’ efforts to finish earlier orders faster than they could replace them. Employment levels fell once more as producers continued to adjust their staffing. Business confidence improved, reaching its highest level since February, though it remained below its long-term average. The July survey revealed stronger activity on production lines, but order growth, exports, and employment still lagged behind the headline index.
Production surpasses incoming demand
Weakness in demand persisted as a key challenge for the eurozone manufacturing sector. New export orders fell across several major manufacturing nations. Domestic demand provided limited support, leading to only a marginal increase in total orders. To meet higher production targets, companies drew down existing work-in-progress from previous months, causing output growth to outpace new sales. As a result, the gap between output and order backlogs remained noticeable as the sector entered the third quarter with fewer pending orders.
In July, price growth slowed, despite ongoing disruptions to international supply chains. Input costs rose at the slowest rate in five months, and factory gate prices increased at their weakest pace since March. Although supplier delivery times remained longer than usual, they improved from the previous five months. Elevated energy costs and shipping issues related to Middle East instability continued to impact production networks, although overall cost increases slowed, reflecting a moderation in inflation pressures.
Eurozone’s broader activity also expands amid manufacturing growth
The positive manufacturing figures coincided with faster growth across the wider private sector within the eurozone. The composite output index rose to 51.9 in July, marking its highest level in five months. This indicator measures activity in both manufacturing and service industries. While remaining above the 50 threshold indicating expansion, manufacturing contributed through increased production, although demand indicators such as new orders, exports, and employment were weaker than the overall output measure.
Eurostat reported a 0.4% increase in eurozone gross domestic product during the second quarter. This growth covered the three-month period when the economy recorded no quarterly expansion previously. Inflation rose to 2.9% in July from 2.8% in June, while the unemployment rate remained steady at 6.3% in June. The combined data points to firmer economic activity across the currency bloc, despite continued weak factory demand amid the strongest production growth since early 2022.