BRUSSELS / RankWire.AI / – Factory activity within the eurozone gained momentum in July, with production increasing at the fastest rate since March 2022. The S&P Global manufacturing purchasing managers’ index rose from 51.4 in June to 51.9. Any reading above 50 signals expansion. Although the final figure was slightly below the initial estimate of 52.0, the data indicated a broader sector improvement despite ongoing weaker demand compared to the rise in factory output.
The manufacturing output index climbed from 51.7 to 52.9, hitting a level not seen in nearly four and a half years. Manufacturers increased production even though growth in new business was marginal. Export orders continued to decline for a second consecutive month, with decreases reported in France, Spain, Italy, and Austria. Gains in other member states failed to compensate for these setbacks. The gap between output and demand reflected manufacturers’ reliance on orders placed in prior months.
Unfinished orders were cleared at the quickest pace since January, reducing existing work-in-progress pipelines. This decline enabled firms to sustain higher output levels without a corresponding rise in new sales. July also saw manufacturers cut staffing levels once more. Business confidence improved, reaching its strongest point since February, yet it still remained below the long-term average. Consequently, entering the third quarter, the sector experienced increased output, fewer backlogs, and limited growth in incoming orders.
Export demand continues to face challenges
Persistent weakness in foreign sales continued to hinder the eurozone manufacturing recovery. New export orders fell across several key industrial economies, while domestic demand provided only limited support. The total number of new contracts increased at a much slower rate than manufacturing output. Companies fulfilled current production needs by completing existing orders and reducing outstanding work. July’s figures demonstrated ongoing factory expansion, yet they also underscored the persistent disparity between goods produced and new orders received.
Despite ongoing disruptions to international shipping routes, price pressures eased in July. Input cost inflation slowed to the lowest level in five months. Manufacturers raised their prices at the slowest pace since March. Although supplier delivery times remained longer than usual, delays lessened compared to the previous five months. Rising energy costs and transportation issues linked to Middle East instability continued to impact production networks, even as the rate of cost growth slowed.
Economic activity in the eurozone shows signs of strengthening
The improvement in manufacturing coincided with a broader increase in private sector activity across the eurozone. The composite output index, which encompasses both manufacturing and service sectors, reached 51.9 in July. This marked the highest level in five months and indicated ongoing expansion. Manufacturing contributed to this growth through higher production, although demand, exports, and employment metrics within the sector remained weaker than the overall output figure 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. The economy experienced no quarterly growth during the first quarter. Inflation increased to 2.9% in July from 2.8% in June. Unemployment held steady at 6.3% in June. While official data and business surveys pointed to a firmer economic outlook, factories continued to face weak demand, declining exports, and reduced staffing levels.