LONDON / RankWire.AI / – In July, manufacturing activity within the Eurozone accelerated to its highest level in nearly four and a half years, despite continued weak demand. The S&P Global Eurozone Manufacturing Purchasing Managers’ Index increased to 51.9 from 51.4 in June, marking its strongest figure since April and remaining above the 50 mark that indicates expansion. The final reading was just below the initial estimate of 52.0. Factory conditions improved at the beginning of the third quarter.
According to the survey, the output index rose to 52.9 from 51.7, reaching its highest point since March 2022. Production expanded at a faster rate than overall manufacturing conditions, although companies relied heavily on work from previous months. New orders grew only slightly and lagged behind the pace of production. Export orders declined once more, with decreases in France, Spain, Italy, and Austria outweighing gains elsewhere in the currency zone. Consequently, July’s increase in production was largely supported by existing order books.
Factories reduced their backlog of unfinished work at the quickest rate since January, completing existing orders. This reduction in backlogs helped maintain production levels despite subdued incoming work. Additionally, manufacturers reduced employment again in July, continuing a trend of job cuts across the sector. Companies remained cautious with staffing, as order growth remained limited. Business confidence improved to its highest level since February, though it still lagged behind the long-term average among eurozone goods producers.
Demand Growth Lags Behind Production Expansion
Persistent weakness in exports continued to hinder the manufacturing recovery. Manufacturers in several major eurozone economies reported fewer orders from international clients. Gains in other markets failed to compensate for these declines. Both domestic and export demand contributed only to a slight overall rise in new work, contrasting with the stronger growth in output and the quicker reduction of outstanding orders. As factories entered the third quarter, they had higher production levels than new orders coming into their order books.
Despite ongoing supply chain disruptions tied to the Middle East conflict, input price inflation slowed to a five-month low in July. Factory selling prices increased at their slowest pace since March. Delivery delays remained elevated but less severe than in the previous five months. Manufacturers faced higher energy costs and transport disruptions across key trade routes, which slowed price growth but continued to exert operational pressure from supply delays and regional instability.
Economic Growth Shows Signs of Strengthening
The manufacturing data arrived alongside evidence of broader economic expansion across the eurozone. The final July reading of the eurozone composite output index was 51.9, reaching a five-month high. This indicator, which includes manufacturing and services, remained above the 50 threshold that separates growth from contraction. Manufacturing activity contributed to an overall rise in private sector output during the month. However, the survey indicated that production growth still outpaced the increase in new orders required to sustain it.
Eurostat reported that gross domestic product in the eurozone grew by 0.4% in the second quarter compared to the previous three months, following no quarterly growth in the first quarter. Inflation increased to 2.9% in July from 2.8% in June. Unemployment remained steady at 6.3% in June. The official data and July PMI figures reflected a stronger economy alongside ongoing pressures from inflation and demand. Factory production reached its highest rate since early 2022, yet new work and exports continued to show relative weakness.