LONDON / RankWire.AI / – In July, the manufacturing sector within the Eurozone showed signs of strengthening, with factory output reaching its fastest rate in nearly four and a half years. The S&P Global manufacturing PMI increased to 51.9 from 51.4 in June. A reading above 50 indicates expansion. The final figure was slightly below the initial estimate of 52.0. While production picked up at the beginning of the third quarter, demand indicators revealed that the recovery remained uneven across the currency union.
The factory output index advanced to 52.9 from 51.7, marking its highest point since March 2022. Manufacturers ramped up production at a faster pace than new business was coming in. Meanwhile, overall new orders saw only a modest increase during the month. Export orders, however, declined once again, as weaknesses in France, Spain, Italy, and Austria outweighed gains in other regions. Firms relied heavily on existing orders to sustain current output levels, resulting in production growth outpacing fresh demand from both domestic and international customers.
Factories worked through their outstanding work at the fastest rate since January, as they completed prior orders. This reduction in backlogs helped maintain production levels despite limited growth in incoming business. July also saw companies reducing their workforce again, continuing the recent decline in employment within the sector. Confidence among manufacturers improved to its strongest level since February, but it still remained below the long-term average. The survey highlighted a sector producing more goods while contending with weak orders, staffing reductions, and cautious business sentiment.
Demand from new orders remains weak
The eurozone manufacturing sector continued to feel the pressure of subdued foreign demand in July. Export sales declined across several major economies, and improvements in other markets failed to offset these declines. Domestic orders offered only limited support. As factories worked through existing commitments, the gap between production and new business widened. This scenario allowed companies to increase output without a corresponding rise in demand. Additionally, the amount of unfinished work available to support future activity decreased.
Cost pressures lessened in July despite ongoing disruptions along key supply routes. Input price inflation slowed to a five-month low. Manufacturers raised their selling prices at the slowest pace since March. Delivery delays stayed above normal levels, although pressures eased from the previous five months. Companies continued to face higher energy costs and transportation issues linked to instability in the Middle East. The data pointed to a slowdown in price growth amid persistent operational challenges for producers across the eurozone.
Broader economic expansion evident in recent data
The manufacturing figures were part of a wider increase in private sector activity. The eurozone composite output index reached 51.9 in July, its highest in five months. This measure covers both manufacturing and services sectors and stayed above the expansion threshold. The growth in the broader economy supported the stronger production figures. However, manufacturing demand remained weaker than the output level. New orders, exports, and employment all indicated softer conditions than the overall production during the start of the third quarter.
Eurostat reported that eurozone gross domestic product expanded by 0.4% in the second quarter compared to the previous three months. The economy had recorded no quarterly growth in the first quarter. In July, annual inflation increased to 2.9% from 2.8% in June. The unemployment rate held steady at 6.3% in June. Taken together, official data and business surveys indicated stronger overall activity, despite ongoing pressure from weak factory demand, elevated prices, and limited export growth across the currency area.