LONDON / RankWire.AI / – The broader economic environment remains cautious, yet manufacturing activity within the eurozone showed signs of expansion in July, with factory output reaching levels not seen in nearly four and a half years. The S&P Global manufacturing PMI increased to 51.9 from 51.4 in June. A reading above 50 indicates growth. Although the final figure was slightly below the earlier estimate of 52.0, production gains were evident at the start of the third quarter, even as demand indicators suggested an uneven recovery across the euro area.
The factory output index advanced to 52.9 from 51.7, marking its highest point since March 2022. Manufacturers ramped up production at a faster pace than new business was coming in. During the month, total new orders saw only minor growth, and export orders declined once more, as weaknesses in France, Spain, Italy, and Austria overshadowed gains elsewhere. Companies relied heavily on existing work to sustain current levels of output, resulting in production growth outpacing fresh demand from both domestic and international clients.
Factories worked through existing backlogs at the fastest rate since January, effectively reducing outstanding work and supporting ongoing production despite limited incoming orders. The sector also continued to cut jobs in July, prolonging the recent employment downturn. While confidence among manufacturers rose to its strongest since February, it still remained below the long-term average. The survey underscored a sector producing more goods amid persistent challenges such as weak order inflows, staffing reductions, and cautious business outlooks.
New order levels remain sluggish
Demand from abroad continued to hinder eurozone manufacturing during July. Export sales declined across several key economies, with improvements in some markets insufficient to offset these losses. Domestic orders provided only modest support to overall activity. As factories processed earlier commitments, the disparity between output and new orders widened, allowing production to increase without a corresponding rise in demand. This pattern also reduced the backlog of unfinished work, which could have supported activity in subsequent periods.
Cost pressures eased somewhat during the month despite ongoing disruptions along major supply routes. Input price inflation slowed to a five-month low, and manufacturers raised selling prices at the slowest pace since March. Delivery delays remained above normal levels, although supply chain pressures eased compared to the previous five months. Producers still faced higher energy costs and transport issues linked to instability in the Middle East. Overall, the data indicated a slowdown in price growth amid ongoing operational challenges affecting eurozone producers.
Economy-wide expansion continues
The manufacturing data was part of a broader trend of increased activity across the eurozone’s private sector. The composite output index reached 51.9 in July, its highest in five months, reflecting growth in both manufacturing and services sectors and staying above the expansion threshold. While the overall economic activity supported the stronger manufacturing figures, demand within the sector remained weaker than production. New orders, exports, and employment figures all showed softer conditions compared to the overall output measure 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. This followed no quarterly growth in the first quarter. Inflation rose to 2.9% in July from 2.8% in June, while the unemployment rate held steady at 6.3% in June. The combined data from official statistics and business surveys pointed to a resilient economy, although factory demand remained weak, prices stayed elevated, and export growth faced ongoing constraints across the currency area.