LONDON / RankWire.AI / – Manufacturers across the Eurozone experienced their fastest growth in nearly four and a half years in July. The S&P Global manufacturing purchasing managers’ index increased to 51.9 from 51.4 in June. Readings above 50 signify expansion, while those below indicate contraction. The final index was just shy of the initial estimate of 52.0. The overall improvement was driven by stronger production, although new orders and export activity continued to be subdued.
The index measuring manufacturing output rose to 52.9 from 51.7, marking the highest level since March 2022. Factories accelerated their output growth, even as new business inflows remained relatively weak. During July, total orders saw only slight growth, while export sales declined once more. Countries such as France, Spain, Italy, and Austria reported weaker overseas demand. Gains in other parts of the currency area were insufficient to offset these declines. Much of the work completed during the month was based on existing contracts.
Outstanding workloads fell at the fastest pace since January, indicating that factories were finishing previous orders more rapidly than they could replace them. Employment levels decreased again as firms continued to adjust staffing. Business confidence rose to its highest point since February, but still remained below its long-term average. The July survey highlighted increased activity in production lines, yet growth in orders, exports, and employment continued to lag behind the overall index.
Production surpasses new demand
Weaknesses persisted in demand within the eurozone manufacturing sector. New export orders declined in several key manufacturing countries. Domestic demand provided only limited support, leading to a marginal increase in total orders. To meet higher production targets, companies relied on reducing unfinished work from previous months, which caused output growth to outpace incoming sales. As the sector entered Q3, the disparity between production and new orders became evident through smaller order backlogs.
Price increases slowed in July, although ongoing disruptions across international supply chains continued to challenge manufacturers. Input cost inflation cooled to its lowest point in five months, and factory gate prices rose at their weakest rate since March. Delivery times from suppliers remained longer than usual but showed improvement from the previous five months. Persistent pressures from higher energy costs and shipping issues related to Middle East instability continued to impact supply networks, even as overall cost increases moderated.
Broader eurozone activity also shows growth
This manufacturing sector growth was accompanied by a faster expansion across the wider eurozone private sector. The composite output index reached 51.9 in July, its highest reading in five months. This indicator combines activity levels from both manufacturing and service industries, and staying above 50 signifies ongoing monthly growth. While manufacturing drove the overall increase through higher production, its demand indicators—such as new orders, exports, and employment—remained relatively weaker than the sector’s output measure.
Eurostat reported a 0.4% rise in eurozone gross domestic product during the second quarter. This growth compared to the previous three months, which showed no quarterly expansion. Inflation in July increased to 2.9% from 2.8% in June, while the unemployment rate remained steady at 6.3% in June. These figures collectively point to an overall improvement in economic activity within the currency bloc, despite ongoing weakness in factory demand, even as production reached its strongest level since early 2022.