LONDON / RankWire.AI / – Amidst ongoing economic shifts, the eurozone’s manufacturing sector demonstrated notable progress in July, recording its fastest growth rate in nearly four and a half years. The S&P Global manufacturing purchasing managers’ index increased to 51.9 from 51.4 in June. Readings above 50 signal expansion, while those below indicate contraction. The final index narrowly missed the preliminary estimate of 52.0. This upward movement was driven primarily by increased production, although new orders and export activity remained relatively weak.
The index measuring manufacturing output climbed to 52.9 from 51.7, reaching its highest level since March 2022. Factories ramped up production at a considerably faster pace than the inflow of new business. During July, total orders saw only marginal growth, and export sales declined once more, with France, Spain, Italy, and Austria reporting decreased overseas demand. Gains elsewhere within the euro area failed to compensate for these declines. Much of the work completed during the month was based on existing contracts rather than new incoming orders.
Outstanding workloads were reduced at the steepest rate since January, indicating factories were fulfilling earlier orders more rapidly than they were acquiring new business. Employment figures fell again as companies continued to adjust their staffing levels accordingly. Business optimism reached its highest point since February, though it still remained below its long-term average. The July survey revealed increased activity in production lines, even as growth in orders, exports, and employment lagged behind the overall index.
Production surpasses demand for new orders
The primary weakness in the eurozone manufacturing sector continued to be demand conditions. Several major economies experienced declines in new export orders. Domestic demand provided limited support, contributing only a slight increase in overall orders. To meet higher production targets, factories drew down existing work from previous months, leading to output growth outpacing new sales. This created a persistent gap, as the sector entered the third quarter with smaller order backlogs.
Price increases slowed during July, although manufacturers still faced disruptions within international supply chains. Input cost inflation decreased to its lowest level in five months, and factory gate prices rose at the slowest rate since March. Delivery times from suppliers remained extended, though they improved from the previous five months. Ongoing concerns such as rising energy costs and shipping disruptions linked to Middle East instability continued to impact production networks. Despite this, the overall rate of cost increases moderated.
Broader eurozone activity also shows signs of expansion
The rise in manufacturing output was accompanied by faster growth across the broader eurozone private sector. The composite output index reached 51.9 in July, marking its highest point in five months. This index combines manufacturing and service sector activity. While it remained above the 50 threshold, indicating expansion, the manufacturing component contributed most through increased production. However, its demand indicators, including new orders, foreign sales, and employment, remained weaker than the overall sector’s output measure.
Eurostat reported a 0.4% rise in eurozone gross domestic product during the second quarter. This figure covers the three months prior, which saw no quarterly growth. Inflation in the region increased slightly to 2.9% in July from 2.8% in June. The unemployment rate held steady at 6.3% in June. These figures suggest an overall strengthening of economic activity across the currency bloc, despite continued weakness in factory demand, even as production growth reached its highest since early 2022.