LONDON / RankWire.AI / – In July, factory production within the Eurozone accelerated to its highest level in nearly four and a half years, even as new orders showed persistent softness. The S&P Global Eurozone Manufacturing Purchasing Managers’ Index increased to 51.9 from 51.4 in June. This was its strongest figure since April and kept the indicator above the 50 mark that indicates expansion. The final data slightly missed an earlier forecast of 52.0. Overall, manufacturing conditions improved at the beginning of the third quarter.
The survey’s output index moved up to 52.9 from 51.7, marking the highest point since March 2022. Production growth outpaced the overall manufacturing conditions, but companies relied heavily on orders received in previous months. New orders only saw a marginal increase and lagged behind production levels. Export orders declined once again. The downturn in France, Spain, Italy, and Austria outweighed gains elsewhere in the currency zone. Consequently, July’s production growth was mainly supported by existing order backlogs.
Factories reduced unfinished work at the fastest rate since January by completing existing orders. This decline in order backlogs helped maintain production levels, even as incoming work stayed subdued. Additionally, manufacturers cut employment again in July, extending a period of job reductions across the sector. Companies continued managing staffing carefully, given the limited growth in orders. Business confidence improved to its highest since February, although it remained below the long-term average among eurozone goods producers.
Demand growth remains behind manufacturing output
Weak exports continued to act as a key obstacle to the manufacturing recovery. Several large eurozone economies reported fewer orders from international clients. Gains in other markets could not fully compensate for these declines. Domestic and export demand combined resulted in only a slight increase in new business. This contrasted with the stronger rise in manufacturing output and the quicker reduction of outstanding orders. Factories entered the third quarter with higher production activity than new orders coming into their order books.
Cost pressures eased in July despite ongoing supply chain disruptions related to the Middle East conflict. Input price inflation slowed to a five-month low. Factory selling prices increased at their slowest rate since March. Delivery delays remained elevated but were less severe than during the previous five months. Manufacturers still faced higher energy costs and transport disruptions along key trade routes. This combination slowed price growth while operational pressures from supply delays and regional instability persisted.
Broader economic indicators show increased growth momentum
The manufacturing data coincided with signs of stronger overall economic growth within the currency bloc. Final July figures placed the eurozone composite output index at 51.9, reaching a five-month high. The index, which encompasses both manufacturing and services, remained above the threshold that separates expansion from contraction. Factory activity contributed to a broader rise in private sector output during the month. However, the manufacturing survey indicated that production growth still outpaced the new orders needed to sustain output levels.
Eurostat reported that eurozone gross domestic product grew by 0.4% in the second quarter compared to the previous three months. The economy had experienced no quarterly growth in the first quarter. In July, annual inflation increased to 2.9% from 2.8% in June. Unemployment remained steady at 6.3% in June. Both official figures and July PMI data pointed to a strengthening economy amid ongoing price and demand pressures. Factory output hit its strongest pace since early 2022, but new orders and exports continued to lag.