LONDON / RankWire.AI / – Eurozone manufacturers boosted their output in July at the quickest pace seen in nearly four and a half years, with the S&P Global manufacturing purchasing managers’ index increasing to 51.9 from 51.4 in June. Readings above 50 signify expansion, whereas those below indicate contraction. The final figure was just below the initial estimate of 52.0. The overall improvement was driven by higher production levels, even as new orders and export demand remained subdued.
The manufacturing output index rose to 52.9 from 51.7, reaching its highest level since March 2022, with factories increasing production at a faster rate than new orders were received. During July, total orders saw only a slight increase, and export sales declined again, with France, Spain, Italy and Austria reporting weaker overseas demand. Gains elsewhere in the currency area failed to offset these declines, and much of the work completed during the month was fulfilled through existing contracts.
Factories reduced their outstanding workloads at the sharpest rate since January, indicating that production was outpacing new business. Employment levels continued to fall as companies adjusted staffing. Business confidence improved to its highest since February but remained below the long-term average. The July survey showed stronger production activity, but order growth, exports, and employment still lagged behind the overall index.
Production Surges Ahead of Demand
Weak demand conditions continued to be the primary challenge for the eurozone manufacturing sector, with new export orders declining across several major economies. Domestic demand contributed little, resulting in only a marginal increase in total orders. To meet higher output goals, companies relied on reducing unfinished work from previous months, leading to output growth surpassing new sales. This difference persisted as the sector entered the third quarter with smaller order backlogs.
While price increases slowed in July, manufacturers still faced ongoing disruptions along international supply chains. Input cost inflation hit a five-month low, and factory gate prices rose at their slowest pace since March. Supplier delivery times remained longer than usual but improved compared to the previous five months. Rising energy costs and shipping issues linked to Middle East instability continued to impact production networks, even as the pace of overall cost increases moderated.
Broader Eurozone Growth Gains Momentum
The manufacturing sector’s improvement was mirrored in faster growth across the wider eurozone private sector. The composite output index reached 51.9 in July, its highest in five months, combining activity data from factories and service providers. While remaining above 50 and indicating expansion, manufacturing contributed mainly through increased production, although demand indicators such as new orders, exports, and employment were weaker than the overall output measure.
Eurostat reported a 0.4% rise in eurozone gross domestic product during the second quarter. This growth followed no quarterly expansion in the previous three months. Annual inflation increased to 2.9% in July from 2.8% in June, while the unemployment rate held steady at 6.3% in June. These figures point to a firmer economic performance across the currency bloc, even as factory demand remained relatively weak despite the strongest production growth since early 2022.