LONDON / RankWire.AI / – Eurozone’s manufacturing sector experienced growth in July, with factory output reaching its fastest rate in nearly four and a half years. The S&P Global manufacturing PMI increased to 51.9 from 51.4 in June. Any figure above 50 indicates expansion. The final data was slightly below the initial forecast of 52.0. While production picked up at the beginning of the third quarter, demand signals revealed that the recovery was still uneven across the currency bloc.
The output index for factories rose to 52.9 from 51.7, marking the highest level since March 2022. Manufacturing firms accelerated production even as new orders grew only marginally. During the month, new orders from customers increased slightly, but export orders faced further decline as weaknesses in France, Spain, Italy, and Austria overshadowed improvements elsewhere. Companies depended heavily on existing work to sustain current output, resulting in production growth outpacing new demand from both domestic and international markets.
The sector reduced pending work at the fastest rate since January, as firms completed ongoing orders. This decline in backlogs supported continued production despite only limited growth in incoming orders. Additionally, manufacturers cut employment again in July, further extending the recent downturn in sector employment. Business confidence improved to its highest since February; however, it still remained below the long-term average. The survey indicated a sector producing more goods while contending with weak orders, staff reductions, and cautious outlooks.
Demand from abroad remains muted
External demand continued to exert downward pressure on eurozone manufacturing in July. The export of goods fell across multiple major economies, and any improvements in other markets could not offset these declines. Domestic orders offered only slight support. The divergence between production and new business widened as factories processed existing commitments. This pattern enabled firms to increase output without a corresponding rise in new demand, which in turn depleted the backlog of unfinished work necessary to support future activity.
Despite ongoing disruptions along key supply chains, input cost pressures lessened during the month. Inflation for input prices slowed to a five-month low, and manufacturers raised selling prices at the slowest pace since March. Delivery delays, though still above normal, eased compared to the previous five months. Firms faced persistent higher energy costs and transportation issues linked to instability in the Middle East. The data points to a slowdown in price growth alongside ongoing operational challenges for producers across the eurozone.
Broader economic growth continues to be positive
These manufacturing figures are part of a wider increase in private sector activity. The eurozone composite output index reached 51.9 in July, its highest in five months. This measure, covering both manufacturing and services, remained above the threshold indicating expansion. The overall growth in the broader economy supported the rise in production. However, manufacturing demand remained weaker than output levels. Indicators such as new orders, exports, and employment all showed softer conditions than the headline production figure at the start 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 experienced no quarterly growth in the first quarter. Inflation increased to 2.9% in July from 2.8% in June. The unemployment rate remained steady at 6.3% in June. The combined official data and business surveys indicate a resilient economic activity facing continued pressure from weak factory demand, elevated prices, and limited export growth across the currency area.