LONDON / RankWire.AI / – In July, manufacturing output across the Eurozone reached its highest level in nearly four and a half years, despite ongoing weak demand. The S&P Global Eurozone Manufacturing Purchasing Managers’ Index increased from 51.4 in June to 51.9, marking the strongest figure since April and maintaining a reading above the 50 mark that indicates expansion. The final reading was just shy of the earlier forecast of 52.0. Factory conditions showed improvement as the third quarter began.
The survey’s output index advanced to 52.9 from 51.7, reaching a peak not seen since March 2022. Although production growth outpaced the overall manufacturing environment, companies relied heavily on orders received in previous months. New orders saw only slight increases and lagged behind the rate of production. Export orders declined once more, with drops in France, Spain, Italy, and Austria outweighing gains elsewhere in the currency area. Consequently, July’s production growth was largely supported by existing order books rather than fresh demand.
Factories accelerated the reduction of unfinished work to the fastest rate since January by completing existing orders, which helped sustain manufacturing activity despite subdued incoming work. Additionally, manufacturers decreased employment again in July, continuing a period of job cuts across the sector. Firms maintained careful staffing levels amid limited order growth. Business confidence improved to its highest point since February, although sentiment still lagged behind its long-term average among eurozone goods producers.
Demand growth remains weaker than production increases
Persistent weakness in exports continued to hinder the manufacturing recovery. Several large eurozone economies reported fewer orders from foreign clients. The gains seen in other markets were insufficient to offset these declines. Overall, domestic and export demand together only resulted in a slight rise in new work, contrasting with the more substantial increase in output and the quicker reduction of outstanding orders. As they entered the third quarter, factories had more production activity than new orders entering their order books.
Despite ongoing supply chain disruptions related to the Middle East conflict, input price inflation slowed to a five-month low in July, easing cost pressures. Factory selling prices grew at their slowest pace since March. Delivery delays remained an issue but became less severe than over the previous five months. The sector still faced higher energy costs and transportation disruptions on key trade routes, which contributed to slower price growth amid operational pressures from delays and regional instability.
Broader economic indicators point to stronger expansion
These manufacturing figures coincide with signs of broader economic growth within the currency union. The final July data showed the eurozone composite output index at 51.9, its highest in five months. This indicator encompasses both manufacturing and services sectors and remained above the 50-level, signaling overall expansion. Manufacturing activity was part of a larger increase in private sector output during the month. However, the survey revealed that production growth continued to outpace the growth of new orders necessary to sustain output levels.
Eurostat reported that the eurozone’s gross domestic product expanded by 0.4% in the second quarter compared to the previous three months. The economy had experienced 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. These official statistics and the July PMI data collectively indicate a stronger economic performance amid ongoing price and demand pressures. Factory output reached its highest pace since early 2022, though new orders and exports continued to show relative weakness.