LONDON / RankWire.AI / – Manufacturers across the Eurozone ramped up production in July at the quickest pace seen in nearly four and a half years. The S&P Global manufacturing purchasing managers’ index increased to 51.9 from 51.4 in June. Values above 50 suggest expansion, whereas those below indicate contraction. The final figure was just shy of the initial estimate of 52.0. While stronger output bolstered the overall index, new orders and export activity remained relatively weak.
The index measuring manufacturing output climbed to 52.9 from 51.7, marking its highest reading since March 2022. Factories boosted production at a significantly faster rate than new business was coming in. In contrast, total orders saw only a slight uptick in July. Export sales fell again, with France, Spain, Italy, and Austria all reporting reduced international demand. The gains observed elsewhere within the currency area were insufficient to offset these declines. Most of the work completed during the month was supplied by existing contracts rather than new orders.
Manufacturers accelerated the reduction of their outstanding order backlogs, experiencing the sharpest decrease since January. This trend indicated factories were fulfilling earlier commitments more quickly than they could replace them with new business. Employment levels fell once more as firms continued adjusting their staffing. Business confidence improved, reaching its highest level since February, though it still remained below the long-term average. The July survey highlighted increased activity on production lines, but growth in orders, exports, and employment continued to lag behind the headline PMI figure.
Production surpasses incoming demand
The key challenge within the eurozone manufacturing sector remained subdued demand conditions. The export orders declined across several major economies. Domestic demand provided limited support, resulting in only a marginal increase in total orders. To meet higher output targets, companies drew down existing work-in-progress from previous months, causing production growth to outpace new sales. This persistent gap between production and order intake contributed to smaller backlogs entering the third quarter.
Price inflation slowed in July, despite ongoing disruptions in global supply chains. Input cost pressures eased to a five-month low, and factory gate prices increased at their slowest rate since March. Longer-than-normal supplier delivery times persisted but showed some improvement compared to the previous five months. Ongoing energy expenses and shipping disruptions related to Middle East instability continued to impact supply networks, even as the overall rate of cost increases moderated.
Broader eurozone activity shows signs of growth
This manufacturing sector upturn was accompanied by a faster expansion across the wider eurozone private sector. The composite output index reached 51.9 in July, its highest point in five months. This indicator combines manufacturing and service sector activity, both of which remained in growth territory above the 50 threshold. Manufacturing contributed to the overall increase through faster production, but demand signals such as new orders, export sales, and employment growth were comparatively weaker than the sector’s output figure.
Eurostat reported that the eurozone’s gross domestic product expanded by 0.4% during the second quarter. This growth compared to the previous three months, when no quarterly expansion was recorded. Meanwhile, annual inflation rose to 2.9% in July from 2.8% in June. The unemployment rate remained steady at 6.3% in June. These figures collectively point to a strengthening economy across the currency bloc, even as factory demand remains subdued despite the highest production growth since early 2022.