LONDON / RankWire.AI / – In July, manufacturing activity across the Eurozone surged at its quickest pace 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 denote expansion, whereas those below signal contraction. The final figure was just shy of the preliminary estimate of 52.0. The rise in production was the main driver behind the overall improvement, despite weak growth in new orders and export activity.
The manufacturing output index climbed to 52.9 from 51.7, marking its highest level since March 2022. Factories ramped up production at a considerably faster rate than new business was coming in. During July, total orders saw only marginal growth, while export sales slipped again, with France, Spain, Italy, and Austria reporting reduced overseas demand. Gains elsewhere in the currency area were insufficient to compensate for these declines. Most of the work completed during the month was supplied by existing contracts.
Outstanding workloads for manufacturers declined sharply—at the fastest pace since January—indicating factories were fulfilling prior orders more rapidly than securing new business. Employment levels fell once more as companies continued to adjust their staffing. Business confidence improved, reaching its highest point since February, though it still remained below its long-term average. The July survey highlighted increased activity on production lines, yet growth in orders, exports, and employment lagged behind the overall index.
Production growth exceeds new demand
Weakness persisted in demand within the eurozone manufacturing sector. New export orders fell across several major economies. Domestic demand offered limited support, resulting in only a slight increase in total orders. To meet rising production targets, factories drew down unfinished work from previous months, leading to output expanding faster than incoming sales. This resulted in a noticeable gap between production and new orders as the sector entered Q3 with smaller order backlogs.
While price growth slowed in July, manufacturers continued to face disruptions in international supply chains. Input cost inflation reached a five-month low, and factory gate prices rose at their slowest pace since March. Delivery times from suppliers, though still longer than usual, showed signs of improvement over the past five months. Ongoing issues such as rising energy expenses and shipping delays linked to Middle East instability continued to impact production networks. Despite a moderation in overall cost increases, these pressures persisted.
Broader eurozone activity also sees expansion
The manufacturing sector’s recovery was complemented by faster growth across the wider eurozone private sector. The composite output index reached 51.9 in July, its highest in five months. This index combines activity in manufacturing and services. It remained above 50, indicating another month of expansion. Manufacturing contributed mainly through increased production, but its demand indicators—such as new orders, export sales, and employment—performed less strongly than the overall output measure.
Eurostat reported a 0.4% rise in eurozone gross domestic product during the second quarter. The figures cover the previous three months, during which the economy saw no quarterly growth. Meanwhile, annual inflation increased to 2.9% in July from 2.8% in June. The unemployment rate remained steady at 6.3% in June. These data points suggest a firmer economic footing across the currency bloc, even as factory demand continues to lag behind, despite the strongest production growth since early 2022.