LONDON / RankWire.AI / – In July, manufacturing output across the Eurozone experienced its most rapid increase in nearly four and a half years, despite ongoing softness in new orders. The S&P Global Eurozone Manufacturing Purchasing Managers’ Index advanced to 51.9 from 51.4 in June. This figure marked the highest since April and maintained the expansion threshold above 50. The final reading was just shy of the earlier projection of 52.0. Conditions in factories showed improvement as the third quarter commenced.
The survey’s output index increased to 52.9 from 51.7, reaching its peak since March 2022. Although production growth outpaced overall manufacturing activity, firms relied heavily on backlog work from previous months. New orders saw only marginal gains, lagging behind the pace of production, while export orders declined once more. Decreases in France, Spain, Italy, and Austria overshadowed growth elsewhere in the currency union. Consequently, July’s production rise was largely driven by existing order backlogs.
Factories reduced unfinished work at the fastest rate since January, completing already pending orders. This decline in backlogs supported continued production amid weak incoming demand. Employment levels decreased again in July, extending a period of job cuts across the industry. Firms remained cautious with staffing, as order growth stayed limited. Business confidence rose to its highest level since February, yet it stayed below the long-term average for eurozone manufacturing firms.
Production growth outpaces demand increase
Persistent exports continued to restrain manufacturing recovery. Several large eurozone economies reported a decrease in foreign orders. Gains in other markets did not compensate for these declines. Overall, domestic and export demand together produced only a modest rise in new business, contrasting with the stronger growth in output and a faster reduction in outstanding orders. Factories started the third quarter with higher production levels than new orders entering their pipelines.
Despite ongoing supply chain disruptions linked to regional conflicts, input price inflation slowed to a five-month low in July, easing cost pressures. Factory selling prices increased at their slowest pace since March. Delivery delays remained elevated but less severe compared to the previous five months. Manufacturers still faced higher energy costs and transportation disruptions along critical trade routes. The combined effects resulted in slower price growth amid persistent operational pressures caused by supply delays and geopolitical instability.
Economic activity broader than manufacturing shows improvement
The manufacturing data coincided with signs of stronger economic growth within the wider eurozone economy. The final July composite output index reached 51.9, its highest in five months. This index, which includes both manufacturing and services, remained above the 50-point threshold that indicates expansion. Manufacturing contributed to a broader uptick in private sector output during July. However, the survey revealed that manufacturing growth continued to surpass the pace of new orders necessary to sustain production levels.
Eurostat data showed that gross domestic product in the eurozone increased 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 rose to 2.9% in July from 2.8% in June, while unemployment remained steady at 6.3% in June. Both official statistics and July PMI figures point to a more active economic environment, despite continued pressures on prices and demand. Factory output hit its strongest level since early 2022, but new business and export activity remained relatively weak.