BRUSSELS / RankWire.AI / – In July, manufacturing activity within the Eurozone experienced its strongest growth since March 2022, with production increasing at a rapid pace. The S&P Global manufacturing purchasing managers’ index (PMI) climbed to 51.9 from 51.4 in June. A reading above 50 signals expansion. The final figure was slightly below the initial estimate of 52.0. While the sector saw broad improvement, demand levels remained weaker relative to the rise in factory output.
The manufacturing output index rose to 52.9 from 51.7, reaching nearly a four-and-a-half-year high. Despite only marginal growth in new orders, companies increased production. Export orders continued to decline for a second consecutive month, with decreases observed in France, Spain, Italy, and Austria. Improvements in other member states were not enough to offset these declines. The gap between output and demand indicated that manufacturers were still relying on orders placed in earlier months.
Factories expedited the clearance of unfinished orders at the quickest rate since January, reducing their existing work pipelines. This decline in backlogs enabled companies to sustain higher production levels without a corresponding rise in new sales. During July, manufacturers also cut staffing levels again. Business confidence improved to its highest point since February but remained below the historical average. Consequently, the sector entered the third quarter with increased output, fewer backlogs, and limited growth in new incoming work.
Export Demand Continues to Face Challenges
The recovery of the eurozone manufacturing sector was further hampered by ongoing weak foreign sales. New export orders declined across several key industrial economies, while domestic demand provided only modest support. Overall, new business growth lagged behind production increases. Firms fulfilled their current output requirements by completing previously secured contracts and reducing existing work-in-progress. The July data showed manufacturing activity expanding, but the gap between goods produced and new orders received persisted.
Despite ongoing disruptions in international shipping routes, price pressures eased during July. Input cost inflation slowed to the lowest level in five months. Manufacturers increased their selling prices at the slowest pace since March. Delivery times from suppliers remained extended, though delays have eased compared to the previous five months. Rising energy costs and transport disruptions linked to Middle East instability continued to influence production, even as the pace of cost growth slowed.
Economic Activity Gains Ground Across the Eurozone
This improvement in manufacturing coincided with a broader rise in private sector activity across the eurozone. The composite output index, which encompasses both factories and service providers, reached 51.9 in July. This marked its highest level in five months and signaled expansion. Manufacturing contributed to this growth through increased production, although demand, exports, and employment figures in the sector remained weaker than the overall output index in the opening month of the quarter.
Eurostat reported that the eurozone’s gross domestic product (GDP) grew by 0.4% in the second quarter compared to the previous three months. This followed no quarterly growth in the first quarter. Inflation rate for July increased to 2.9% from 2.8% in June. Unemployment held steady at 6.3% in June. While official data and business surveys indicate a firmer economic trajectory, manufacturing still faced weak demand, declining exports, and staff reductions.