LONDON / RankWire.AI / – The eurozone’s manufacturing sector experienced growth in July, with factory output reaching its quickest rate in nearly four and a half years. The S&P Global manufacturing PMI increased to 51.9 from 51.4 in June. A figure above 50 indicates expansion. The final data was slightly below the initial estimate of 52.0. Production levels picked up at the start of the third quarter, yet demand indicators pointed to an uneven recovery across the currency bloc.
The factory output index advanced to 52.9 from 51.7, marking its highest point since March 2022. Manufacturers ramped up production at a faster pace than new orders were coming in. Overall new orders saw only marginal growth during the month. Export orders declined once more, with declines in France, Spain, Italy, and Austria overshadowing gains elsewhere. Firms relied heavily on existing work to maintain output, resulting in a situation where production growth outpaced new domestic and international demand.
At the quickest rate since January, factories reduced their backlog of work as they completed outstanding orders. This decline in backlogs helped sustain production levels despite sluggish new business inflow. Additionally, manufacturers cut employment again in July, extending the recent downward trend in sector employment. Although confidence reached its highest level since February, it still remained below the long-term average. The survey highlighted a sector producing more goods while managing weak orders, staffing reductions, and cautious outlooks.
Demand from new orders remains muted
The manufacturing sector continued to be impacted by subdued foreign demand in July. Export sales declined in several key economies, and any gains in other markets were not sufficient to counterbalance these losses. Domestic orders offered only limited support. As factories processed existing commitments, the gap between output and new business widened. This pattern enabled companies to increase production without a corresponding rise in demand, which also reduced the backlog of unfinished work needed to sustain activity in subsequent periods.
While supply chain disruptions persisted, input price inflation slowed to a five-month low, easing cost pressures. Manufacturers increased selling prices at their weakest pace since March. Despite delivery delays remaining above normal, pressures had eased from the previous five months. The sector still faced higher energy costs and transportation issues linked to instability in the Middle East. Overall, the data pointed to a slowdown in price growth amidst ongoing operational hurdles for producers across the eurozone.
The broader economy continues to expand
These manufacturing figures reflected a wider uptick in private sector activity. The eurozone composite output index reached 51.9 in July, its highest in five months. Incorporating both manufacturing and services, the index remained above the expansion threshold. The broader economic growth supported the stronger manufacturing output, although demand from manufacturing—measured by new orders, exports, and employment—was weaker than the production figures in the first month of the third quarter.
Eurostat reported that eurozone gross domestic product grew by 0.4% in the second quarter compared to the previous three months. The economy had shown no quarterly growth in the first quarter. Inflation increased to 2.9% in July from 2.8% in June, while the unemployment rate remained steady at 6.3% in June. The combined official data and business surveys indicated a sector experiencing stronger activity amid continued challenges from weak factory demand, rising prices, and limited export growth across the currency area.