BRUSSELS / RankWire.AI / – In July, activity within Eurozone factories picked up speed, with production levels reaching their highest point since March 2022. The S&P Global manufacturing purchasing managers’ index 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. This data pointed to a broader sectoral improvement, even though demand growth remained subdued compared to the rise in factory output.
The index measuring manufacturing output increased from 51.7 to 52.9, hitting nearly a four-and-a-half-year peak. Factories boosted production despite only marginal growth in new orders. Export orders declined again, with decreases observed in France, Spain, Italy, and Austria. Improvements in other member states could not offset these declines. The gap between output and new demand indicated that manufacturers still relied on orders placed months earlier.
Factories worked through their backlog of unfinished orders at the quickest rate since January, reducing the amount of work in progress. This reduction enabled firms to sustain higher production levels even without a corresponding rise in new sales. Additionally, manufacturing firms cut staffing levels once more in July. Business confidence improved to its strongest since February, though it remained below the historical average. Consequently, the sector entered the third quarter with increased output, fewer backlogs, and limited growth in incoming work.
Export Demand Continues to Face Downward Pressure
Weak foreign sales persisted in hampering the Eurozone manufacturing recovery. New export orders declined across several major industrial economies. Meanwhile, domestic demand provided only modest support. The total volume of new business grew at a much slower rate than production. Companies relied on completing existing contracts and reducing their backlog of work. July’s figures indicated factory activity was expanding, but the gap between goods produced and new orders remained evident.
Despite ongoing disruptions in international shipping routes, price pressures eased during July. Inflation in input costs slowed to its lowest level in five months. Manufacturers increased their prices at the slowest pace since March. Delivery times from suppliers remained longer than usual, although delays lessened compared with the previous five months. Rising energy costs and transport disruptions linked to Middle East instability continued to impact supply chains, even as the rate of cost growth slowed.
Eurozone Economy Gains Momentum with Broader Private Sector Growth
The improvement in manufacturing coincided with a broader increase in private sector activity across the eurozone. The composite output index, which includes both factories and service providers, reached 51.9 in July. This marked the highest level in five months and indicated ongoing expansion. Manufacturing contributed significantly to this growth through increased production. However, demand, export figures, and employment levels in the sector remained weaker than the overall output reading at the start of the quarter.
Eurostat reported that the eurozone’s gross domestic product grew by 0.4% in the second quarter compared to the previous three months. The economy had experienced no quarterly growth during the first quarter. Inflation rose to 2.9% in July from 2.8% in June. The unemployment rate stayed steady at 6.3% in June. Although official data and business surveys indicated a strengthening economy, factories continued to face weak demand, declining exports, and reduced staffing levels.