BRUSSELS / RankWire.AI / – In July, activity within Eurozone factories experienced an uptick, 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. Any figure above 50 signifies expansion. The final result was slightly below the earlier estimate of 52.0. This indicates a broader positive trend in the sector, although demand remained subdued compared to the growth in factory output.
Production in manufacturing rose to 52.9 from 51.7, hitting a level not seen in nearly four and a half years. Firms boosted output despite only marginal growth in new orders. Export orders declined once again, with reductions reported in France, Spain, Italy, and Austria. Other member states showed improvements, but these were insufficient to offset the declines. The gap between output and new demand suggests that manufacturers continued to rely on orders booked in previous months.
Unfinished orders were cleared at the quickest rate since January, reducing the backlog of work in progress. This decline allowed companies to sustain higher production levels without a corresponding increase in new sales. During July, manufacturers again reduced staffing levels. Business confidence improved to its strongest level since February; however, it remained below the long-term average. As a result, the sector entered the third quarter with increased output, fewer backlogs, and limited growth in incoming orders.
Export Demand Continues to Face Challenges
Continued weakness in foreign sales continued to hinder the recovery of the eurozone manufacturing sector. New export orders declined in several key industrial economies, with domestic demand providing only modest support. Total new business increased at a much slower rate than production. Companies fulfilled their current production needs by completing existing contracts and reducing their outstanding orders. July’s data clearly show expansion in factory activity but also highlight the ongoing gap between goods produced and fresh incoming orders.
Despite ongoing disruptions to international shipping routes, price pressures eased in July. Input costs inflation slowed to its lowest level in five months. Manufacturers increased their selling prices at the slowest pace since March. Delivery times from suppliers remained longer than normal, although delays improved compared with the previous five months. Rising energy costs and transport issues related to Middle East instability continued to impact production networks, even as the rate of cost growth slowed.
Economic Activity Gains Momentum Across the Euro Area
The improvement in manufacturing was part of a broader increase in private sector activity across the eurozone. The composite output index, which encompasses both factory and service sector activity, reached 51.9 in July. This marked its highest level in five months, maintaining an expansionary position. Manufacturing contributed significantly to this growth through increased production, although demand, exports, and employment indicators within the sector remained weaker than the overall output figure at the start of the quarter.
Eurostat reported that gross domestic product in the eurozone grew by 0.4% in the second quarter compared to the previous three months. This was a return to growth after a flat first quarter. Inflation in July rose to 2.9% from 2.8% in June, while unemployment stayed steady at 6.3% in June. The official data and business surveys showed stronger economic activity overall, although manufacturing continued to face weak demand, declining exports, and staffing reductions.