BRUSSELS / RankWire.AI / – In July, activity within Eurozone factories experienced increased momentum, with production levels rising at their fastest rate since March 2022. The S&P Global manufacturing purchasing managers’ index climbed to 51.9 from 51.4 in June. Any figure exceeding 50 signifies expansion. The final result was slightly below the initial estimate of 52.0, indicating a sector-wide improvement despite ongoing weaker demand relative to the rise in factory output.
Production expanded as the manufacturing output index grew from 51.7 to 52.9, reaching its highest point in nearly four and a half years. While companies increased production, new orders only grew marginally, with export orders declining for another month in countries such as France, Spain, Italy, and Austria. Gains in other member states did not compensate for these losses. The gap between output and demand suggests manufacturers still rely on orders placed in previous months.
Factories accelerated the clearing of unfinished orders at the fastest pace since January, reducing work-in-progress levels. This decline enabled firms to sustain higher production levels without a proportional increase in new orders. Additionally, manufacturers reduced staffing levels again in July. Business confidence improved to its highest since February but remained below average. Consequently, the sector entered the third quarter with increased output, fewer backlogs, and limited growth prospects for incoming work.
Export Market Continues to Struggle
Persistent weakness in foreign sales continued to hinder the recovery of the eurozone manufacturing sector. New export orders declined across several major industrial nations, while domestic demand offered only limited support. Total new business growth was significantly slower than production increases, with firms fulfilling current output needs by completing existing contracts and reducing outstanding orders. The July data showed factory activity was expanding, yet the persistent gap between production and new orders remained evident.
Price pressures eased in July, despite ongoing disruptions to international shipping routes. Input cost inflation slowed to its lowest in five months, and manufacturers raised their selling prices at the weakest rate since March. Delivery times from suppliers remained longer than usual, though delays lessened compared to the previous five months. Rising energy costs and transport disruptions linked to Middle East instability continued to impact supply chains, even as the rate of cost growth decelerated.
Wider Economic Activity in the Eurozone
This improvement in manufacturing coincided with a broader increase in private sector activity across the eurozone. The composite output index, which reflects both factory and service sector performance, reached 51.9 in July. This marked its highest point in five months and indicated ongoing expansion. Manufacturing contributed significantly to this growth through increased production, though demand, export, and employment figures still lagged behind the overall output reading at the start of the quarter.
Eurostat reported that the eurozone’s gross domestic product grew by 0.4% in the second quarter compared to the previous three months. No quarterly growth was recorded in the first quarter. In July, annual inflation edged up to 2.9% from 2.8% in June. Unemployment remained steady at 6.3% for June. While official data and business surveys indicated a strengthening economy, factories continued to face weak demand, declining exports, and staff reductions.