BRUSSELS / RankWire.AI / – In July, activity within Eurozone factories gained traction, with output expanding at its fastest rate since March 2022. The S&P Global manufacturing purchasing managers’ index increased from 51.4 in June to 51.9. Any figure above 50 signifies growth. Although the final reading was slightly below the preliminary estimate of 52.0, the data indicated a broader upturn across the industry, even as demand remained subdued compared to the rise in factory production.
Production output in manufacturing climbed to 52.9 from 51.7, reaching a nearly four-and-a-half-year high. Despite a marginal increase in new business, companies ramped up their production levels. Export orders declined for a consecutive month, with drops seen in France, Spain, Italy, and Austria. Gains in other member states did not fully compensate for these setbacks. The gap between output and new demand highlighted manufacturers’ reliance on orders secured in previous months.
Factories worked through their backlog of unfinished orders at the fastest pace since January, reducing the volume of work in progress. This decline allowed firms to sustain higher production without a proportional increase in new orders. Additionally, manufacturers once again cut staffing levels during July. While business confidence improved to its strongest since February, it remained below the long-term average. As the third quarter began, the sector showed signs of increased output, diminished backlogs, and limited growth in incoming work.
Export demand continues to face headwinds
The Eurozone’s manufacturing recovery was hampered by persistent weakness in international sales. New export orders fell across several key industrial nations, with domestic demand providing only modest support. Overall new business growth lagged behind production increases, as companies fulfilled existing orders and reduced their backlog of work. The July figures demonstrated ongoing expansion in factory activity but also emphasized the gap between goods produced and new orders received.
Despite ongoing disruptions on global shipping routes, price pressures eased in July. Input cost inflation slowed to its lowest level in five months. Manufacturers increased selling prices at the slowest rate since March. While supplier delivery times remained longer than usual, delays have decreased compared to the previous five months. Elevated energy costs and transport issues related to Middle East instability continued to influence production, though the pace of rising costs moderated.
Economic activity in the currency area shows signs of strengthening
The improvement in manufacturing was accompanied by a broader rise in private sector activity across the eurozone. The composite output index, which includes both manufacturing and service sectors, reached 51.9 in July. This was its highest level in five months, confirming expansion. Manufacturing contributed significantly to this increase through higher production levels. However, readings for demand, exports, and employment remained weaker than the overall output figure at the start of the quarter.
Eurostat reported that gross domestic product in the eurozone grew by 0.4% in the second quarter compared to the previous three months. No quarterly growth was recorded during the first quarter. In July, inflation rose to 2.9% from 2.8% in June. The unemployment rate held steady at 6.3% in June. While official data and business surveys indicated increased economic activity, factories continued to face subdued demand, declining exports, and workforce reductions.