BRUSSELS / RankWire.AI / – In July, factory activity across the eurozone experienced a notable uptick, with production expanding at its fastest rate since March 2022. The S&P Global manufacturing purchasing managers’ index increased to 51.9 from 51.4 in June. A figure above 50 signals growth. The final reading was slightly below the initial estimate of 52.0. The data indicated a broader sectoral improvement, even as demand remained subdued relative to the rise in factory output.
The manufacturing output index climbed to 52.9 from 51.7, reaching a level not seen in nearly four and a half years. Despite only marginal increases in new orders, companies ramped up production. Export orders declined again, with decreases observed in France, Spain, Italy, and Austria. While some member states showed improvements, these were not enough to offset the losses elsewhere. The gap between output and demand suggests manufacturers continued to rely on backlogged orders from previous months.
Factories accelerated the clearing of unfinished orders at the fastest rate since January, thus reducing the work in progress. This decline in backlogs allowed firms to sustain higher production levels without a corresponding rise in new sales. During July, manufacturers also reduced employment levels once more. Business confidence improved to its highest point since February but remained below historic averages. As a result, the sector entered the third quarter with increased output, fewer backlogs, and limited growth in new orders.
Export Market Continues to Weigh on Sector
Weak international sales persisted as a drag on the eurozone manufacturing recovery. New export orders declined across several key industrial nations, while domestic demand offered only modest support. Overall new business grew at a much slower pace than production. Firms fulfilled current output needs by completing existing contracts and reducing outstanding orders. July’s data showed expansion in factory operations but also underscored the ongoing gap between production and new orders coming in.
Despite ongoing disruptions in international shipping routes, price pressures eased during July. Input costs inflation slowed to its lowest level in five months. Manufacturers increased their selling prices at the slowest pace since March. Delivery times from suppliers remained extended but improved compared to the previous five months. Elevated energy costs and transport issues linked to Middle East instability continued to impact supply chains, although the rate of cost growth moderated.
Economic Expansion Extends Across the Eurozone
The uptick in manufacturing activity was part of a broader increase in private sector output across the eurozone. The composite output index, which encompasses both manufacturing and service sectors, reached 51.9 in July. This marked the highest level in five months and indicated ongoing expansion. Manufacturing contributed significantly to this growth through increased production, although demand, export, and employment indicators remained weaker than the overall output figure at the start of the quarter.
Eurostat data revealed that the eurozone’s gross domestic product grew by 0.4% in the second quarter compared to the previous three months. The economy had shown no quarterly growth in the first quarter. Inflation rose to 2.9% in July from 2.8% in June, while unemployment held steady at 6.3% in June. Official statistics and business surveys indicated a strengthening economic environment, even though factories continued to face weak demand, declining exports, and reduced staffing levels.