LONDON / RankWire.AI / – In July, manufacturing activity across the Eurozone experienced its fastest growth in nearly four and a half years, driven by factories drawing down accumulated order backlogs. The S&P Global manufacturing purchasing managers’ index increased to 51.9 from 51.4 in June. Values above 50 denote expansion, whereas those below indicate contraction. The final reading was just shy of the preliminary estimate of 52.0. The overall rise was primarily supported by increased production, even though new orders and export demand remained subdued.
The manufacturing output index climbed to 52.9 from 51.7, marking its highest level since March 2022. Factories boosted their output at a significantly faster rate than the influx of new business. During July, total orders grew only marginally, with export sales declining once again as France, Spain, Italy, and Austria reported weaker foreign demand. Gains in other parts of the currency area failed to compensate for these declines, with much of the completed work during the month supplied by existing contracts.
Factories worked through their outstanding order books at the sharpest rate since January, indicating they were completing previous orders faster than they were securing new ones. Employment levels declined again as companies continued to adjust staffing to match demand. Business confidence improved to its highest point since February, but it still remained below the long-term average. The July survey highlighted increased activity in production lines, yet growth in orders, exports, and employment lagged behind the headline index.
Production surpasses incoming demand
The primary challenge for the eurozone factory sector remained subdued demand conditions. New export orders declined across several key manufacturing economies, while domestic demand offered limited support, resulting in only a marginal increase in total orders. Companies met rising production targets by reducing unfinished work from previous months, which caused output growth to outpace new sales. This persistent gap between production and incoming orders contributed to smaller backlogs as the sector moved into the third quarter.
Price growth slowed during July despite ongoing disruptions in international supply chains. Input cost inflation eased to its lowest in five months, and factory gate prices rose at their slowest pace since March. Although supplier delivery times remained longer than usual, they improved compared to the previous five months. Elevated energy costs and shipping issues linked to Middle East instability continued to impact production networks, even as the overall rate of cost increases moderated.
Eurozone-wide activity also shows signs of expansion
This boost in manufacturing activity was accompanied by a broader acceleration across the eurozone’s private sector. The composite output index reached 51.9 in July, its highest in five months, reflecting combined activity levels in both manufacturing and services sectors. Though still above the 50 mark, indicating expansion, manufacturing contributed significantly through faster production. However, indicators of demand such as new orders, exports, and employment remained weaker than the overall output measure, highlighting ongoing challenges.
Eurostat reported a 0.4% increase in the eurozone’s gross domestic product during the second quarter, marking a return to growth after no quarterly expansion in the prior three months. Meanwhile, annual inflation rose slightly to 2.9% in July from 2.8% in June, and the unemployment rate held steady at 6.3% in June. These figures depict a more resilient economic environment across the currency bloc, even as factory demand continues to lag behind the strongest production growth observed since early 2022.