LONDON / RankWire.AI / – Eurozone’s manufacturing sector showed signs of growth in July, with factory output reaching its quickest rate in nearly four and a half years. The S&P Global manufacturing PMI increased from 51.4 in June to 51.9, signaling expansion as a reading above 50 indicates growth. Although the final figure was slightly below the initial estimate of 52.0, production gains marked a positive start to the third quarter, even as demand indicators revealed that the recovery was uneven across the currency bloc.
The output index for factories rose to 52.9 from 51.7, marking the highest level since March 2022. Manufacturers accelerated production even as new business intake grew at a slower pace, with total new orders only marginally increasing during the month. Export orders declined once again, as weaknesses in France, Spain, Italy, and Austria offset gains elsewhere. Companies relied heavily on backlogged work to sustain current output, resulting in a situation where production growth outpaced fresh demand from both domestic and international clients.
During July, factories reduced pending work at the fastest rate since January, as they completed existing orders. This decline in backlogs helped maintain production levels despite limited growth in incoming new business. Additionally, manufacturers cut jobs again, continuing the recent downward trend in employment within the sector. Confidence levels improved to their highest since February, yet remained below the long-term average. The survey indicated a sector producing more goods while coping with weak orders, staffing reductions, and cautious outlooks for future business.
Demand from Abroad Remains Weak
Foreign demand continued to dampen eurozone manufacturing in July. Export sales declined across several key economies, and improvements in other markets failed to compensate for these setbacks. Domestic orders only provided modest support, and as factories processed earlier commitments, the gap between output and new business widened. This pattern allowed companies to increase production without a corresponding rise in demand, thereby reducing the stock of unfinished work that could support activity in future periods.
Input cost pressures eased during the month despite ongoing disruptions along major supply routes. Inflation in input prices slowed to a five-month low, and manufacturers raised selling prices at the slowest pace since March. Delivery delays persisted above normal levels, though pressure eased from the previous five months. Ongoing higher energy costs and transportation issues linked to instability in the Middle East continued to pose challenges. The data pointed to slower price growth amid persistent operational difficulties faced by producers across the eurozone.
Economy Shows Signs of Expansion
The manufacturing data contributed to a broader picture of economic activity within the private sector. The eurozone composite output index reached 51.9 in July, its highest point in five months. This measure, which encompasses manufacturing and services, remained above the threshold for expansion. While the wider economy experienced growth supporting the higher production figures, manufacturing demand remained softer than output, with new orders, exports, and employment all weaker than the headline production reading at the start of the third quarter.
Eurostat reported a 0.4% increase in eurozone gross domestic product during the second quarter compared to the previous three months, following no quarterly growth in the first quarter. Meanwhile, annual inflation rose to 2.9% in July from 2.8% in June, and the unemployment rate stayed steady at 6.3% in June. Both official statistics and business surveys pointed to increased activity levels, despite ongoing pressures from weak factory demand, rising prices, and limited export growth across the currency area.