BRUSSELS / RankWire.AI / – In July, manufacturing activity across the Eurozone experienced an uptick, with production reaching its fastest rate since March 2022. The S&P Global manufacturing purchasing managers’ index increased to 51.9 from 51.4 in June. A reading above 50 signifies growth, though the final figure was slightly below the initial estimate of 52.0. This indicates a broader sectoral improvement, despite ongoing weaker demand compared to the rise in factory output.
The index measuring manufacturing output climbed to 52.9 from 51.7, marking a nearly four-and-a-half-year high. Firms elevated production levels even as new orders grew only marginally. Export orders declined again, affected by decreases in France, Spain, Italy, and Austria. Gains in other member states did not fully compensate for these drops. The gap between output and demand demonstrated that manufacturers relied heavily on orders placed in previous months.
Factories reduced their backlog of unfinished orders at the quickest pace since January, which in turn limited the work pipeline. This decline enabled companies to sustain higher production without a corresponding rise in new sales. During July, manufacturers also decreased staffing levels once more. Business confidence increased to its strongest level since February but remained below the historical average. As a result, the sector entered the third quarter with increased output, fewer backlogs, and limited growth in new work.
Continued Pressure on Export Demand
Persistent weakness in foreign sales continued to hinder the recovery of the eurozone manufacturing sector. New export orders declined across several key industrial economies, while domestic demand provided only modest support. Overall, new business growth lagged behind production expansion. Companies fulfilled current output needs primarily through completing existing contracts and reducing backlog. The July data displayed clear factory expansion, but also underscored the ongoing disparity between goods produced and new orders received.
Despite ongoing disruptions in international shipping routes, input cost inflation slowed, reaching its lowest point in five months. Manufacturers increased prices at the slowest rate since March. Delivery times from suppliers remained longer than usual, although delays eased compared to the previous five months. Higher energy costs and transportation issues linked to Middle East instability continued to impact production, even as the rate of cost growth slowed down.
Improvement in Overall Economic Activity within the Currency Zone
The manufacturing sector’s progress was part of a broader increase in private sector activity throughout the eurozone. The composite output index, which includes manufacturing and services, reached 51.9 in July, its highest in five months, maintaining an expansionary level. Manufacturing contributed significantly to this rise through increased production. However, demand, export activity, and employment figures within the sector remained weaker than the overall output index at the start of the quarter.
Eurostat reported that eurozone gross domestic product grew by 0.4% in the second quarter compared to the previous three months. The economy experienced no quarterly growth during the first quarter. In July, annual inflation rose to 2.9%, up from 2.8% in June. Unemployment remained steady at 6.3% in June. Although official data and business surveys indicate a stronger economic performance, factories continued to face subdued demand, declining exports, and reduced staffing levels.