LONDON / RankWire.AI / – In July, factory production across the Eurozone expanded at its quickest rate in nearly four and a half years, even as demand showed signs of stagnation. The S&P Global Eurozone Manufacturing Purchasing Managers’ Index increased to 51.9 from 51.4 in June. This marked the highest reading since April and maintained the index above the 50 mark, which indicates growth. The final figure was slightly below the earlier estimate of 52.0. Manufacturing conditions saw improvement as the third quarter began.
The survey’s output index advanced to 52.9 from 51.7, reaching its highest level since March 2022. Production growth outpaced the overall manufacturing conditions, though companies remained heavily reliant on work already received from previous months. New orders grew only marginally and did not keep pace with production increases. Export orders declined once again, with drops in France, Spain, Italy, and Austria overshadowing gains elsewhere in the euro currency area. Consequently, July’s production growth was largely supported by existing order backlogs.
Manufacturers reduced their unfinished work at the fastest rate since January by completing existing orders. This reduction in backlogs helped sustain production levels, even as incoming new work remained subdued. Employment levels continued to decline during July, extending a period of job cuts across the manufacturing sector. Firms remained cautious in managing staffing, given the limited growth in new orders. Business confidence improved to its highest point since February, although it still trailed behind its long-term average among eurozone manufacturers.
Demand growth remains sluggish compared to production increases
Exports continued to act as a significant limiting factor for the manufacturing sector’s recovery. Several major eurozone economies reported a decline in foreign orders. Gains from other markets failed to compensate for these decreases. Overall, domestic and export demand combined resulted in only a modest rise in total new work. This contrasted with the stronger output increases and the quicker reduction in outstanding orders. As factories moved into the third quarter, their production activity exceeded the volume of fresh orders entering their order books.
Despite ongoing supply chain disruptions related to the Middle East conflict, input cost pressures eased in July. Inflation in input prices slowed to its lowest point in five months. Factory selling prices increased at their slowest pace since March. Delivery delays remained a concern but were less severe than during the previous five months. Manufacturers still faced higher energy costs and disruptions to key trade routes, which contributed to operational pressures. As a result, factories experienced slower price growth but continued challenges from supply delays and regional instability.
Broader economic expansion signals strengthen
The manufacturing data came alongside indications of overall economic growth within the euro currency bloc. The final July figures showed the eurozone composite output index at 51.9, reaching a five-month high. This index, which combines manufacturing and services activity, stayed above the 50 threshold that differentiates expansion from contraction. Manufacturing was part of a wider increase in private-sector output during the month. However, the survey indicated that production growth still outpaced the growth in new orders necessary to sustain the increased output levels.
Eurostat reported that the eurozone’s gross domestic product grew by 0.4% in the second quarter compared to the previous three months. The economy had recorded no quarterly growth in the first quarter. Inflation in July increased to 2.9% from 2.8% in June, while unemployment remained steady at 6.3% in June. The official data combined with the July PMI figures suggest a more active economy despite ongoing price and demand pressures. Factory production reached its strongest rate since early 2022, though new work and exports continued to be relatively weak.