BRUSSELS / RankWire.AI / – In July, activity within Eurozone factories experienced a notable uptick, with production expanding at its fastest rate since March 2022. The S&P Global manufacturing purchasing managers’ index (PMI) increased to 51.9 from 51.4 in June. Any reading above 50 signifies expansion. The final figure was marginally below the initial forecast of 52.0. This outcome reflected a broader sectoral improvement, although demand remained relatively subdued despite the rise in factory output.
At the start of August, the manufacturing output index climbed to 52.9 from 51.7, reaching a level not seen in nearly four and a half years. Despite only slight growth in new orders, companies pushed production higher. Exports declined for a second consecutive month, with decreases observed in France, Spain, Italy, and Austria. Other member states experienced improvements, but these did not compensate for the losses elsewhere. The gap between output and demand indicated that manufacturers continued to rely on orders placed in earlier months.
During July, factories reduced their backlog of unfinished work at the quickest pace since January, decreasing the workload on their existing pipelines. This reduction enabled firms to sustain higher output levels without a corresponding rise in new orders. Conversely, staffing levels were cut once more during this period. Although business confidence improved to its strongest point since February, it still remained below the long-term average. As a result, the sector entered the third quarter with increased production, fewer backlogs, and only modest growth prospects for new work.
Export Markets Continue to Face Challenges
The recovery of the eurozone manufacturing sector remained constrained by sluggish foreign demand. Across several major industrial economies, new export orders declined, while domestic consumption provided only limited support. The rise in total new business was considerably slower than production. Companies fulfilled existing orders by completing previous contracts and reducing outstanding workloads. July’s data demonstrated a clear increase in factory activity but also underscored the ongoing gap between goods produced and new orders received.
Despite ongoing disruptions in international shipping, price pressures eased during July. Input costs inflation slowed to its lowest level in five months, and manufacturers raised their prices at the slowest rate since March. Delivery times from suppliers remained longer than usual, though delays lessened compared to the previous five months. Elevated energy costs and transport issues linked to Middle East instability continued to impact production chains, even as the rate of cost growth moderated.
Wider Economic Activity Gains Momentum in the Currency Zone
The improvement in manufacturing was part of a broader rise in private sector activity across the eurozone. The composite output index, which includes both manufacturing and services, reached 51.9 in July. This was the highest level in five months, confirming a continued 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 during the first month of the quarter.
Eurostat reported that gross domestic product (GDP) in the eurozone grew by 0.4% in the second quarter compared with the previous three months. During the first quarter, there was no quarterly growth. Inflation on an annual basis increased to 2.9% in July from 2.8% in June. The unemployment rate stayed steady at 6.3% in June. While official indicators and business surveys pointed to stronger economic activity, manufacturing continued to face weak demand, declining exports, and reduced staffing levels.