BRUSSELS / RankWire.AI / – In July, factory activity within the Eurozone gained momentum, with production expanding at its fastest rate since March 2022. The S&P Global manufacturing purchasing managers’ index increased to 51.9 from 51.4 in June. A reading above 50 indicates growth. The final number was slightly below the initial estimate of 52.0. This result reflects a broader sector improvement, even though demand remained weaker than the rise in factory output.
The index measuring manufacturing output rose to 52.9 from 51.7, reaching a level not seen in nearly four-and-a-half years. Companies increased production despite only marginal growth in new business. Export orders declined again for the month, with decreases observed in France, Spain, Italy, and Austria. Gains in other member states did not offset these losses. The gap between output and demand suggests manufacturers continued to rely on orders placed in earlier months.
Factories reduced unfinished order backlogs at the fastest rate since January, thereby decreasing the work in progress. This decline enabled firms to sustain higher production levels without a corresponding increase in new sales. Additionally, manufacturers cut staffing levels once more in July. Business confidence rose to its strongest level since February but remained below the historical average. As a result, the sector entered the third quarter with higher output, fewer backlogs, and limited growth in incoming work.
Export demand continues to face downward pressure
Weak foreign sales persisted as a barrier to the eurozone’s manufacturing recovery. New export orders declined across several major industrial economies, while domestic demand provided only modest support. The growth of total new business was much slower than production. Companies fulfilled current output needs mainly by completing existing contracts and reducing outstanding workloads. July’s data showed factory activity expanding clearly, but the gap between goods produced and new orders remained evident.
Price pressures eased in July despite ongoing disruptions to international shipping routes. Input cost inflation slowed to its lowest level in five months. Manufacturers increased their selling prices at the slowest pace since March. Supplier delivery times stayed longer than usual, although delays shortened compared to the previous five months. Rising energy costs and transport issues linked to Middle East instability continued to impact production networks, even as the pace of cost growth slowed.
Wider economic activity gains strength across the currency bloc
The improvement in manufacturing coincided with a broader rise in private sector activity throughout the eurozone. The composite output index, which encompasses both factories and service providers, reached 51.9 in July. This was the highest level in five months and indicated expansion. Manufacturing contributed to this increase through higher production levels. Nonetheless, demand, exports, and employment figures in the sector remained weaker than the overall output measure 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 in the first quarter. Inflation rose to 2.9% in July from 2.8% in June. Unemployment stayed steady at 6.3% in June. Official data and business surveys pointed to increased economic activity, yet factories continued to face subdued demand, declining exports, and staffing reductions.