LONDON / RankWire.AI / – In July, Eurozone factory production experienced its most significant growth in nearly four and a half years, even as new orders continued to be weak. The S&P Global Eurozone Manufacturing Purchasing Managers’ Index increased to 51.9 from 51.4 in June. This was its strongest reading since April and maintained the measure above the 50 mark that indicates expansion. The final figure was just shy of an earlier projection of 52.0. Conditions within factories improved at the beginning of the third quarter.
The survey’s output index advanced from 51.7 to 52.9, marking its highest point since March 2022. Production growth outpaced overall manufacturing conditions, although firms relied heavily on work accumulated in preceding months. New orders saw only a slight uptick and lagged behind the pace of production. Export orders declined once more, with decreases in France, Spain, Italy, and Austria outweighing gains elsewhere within the currency zone. Consequently, July’s boost in production was mainly supported by existing order books.
Factories rapidly reduced unfinished work, with the biggest decrease since January, as they completed pending orders. This reduction in backlogs helped sustain production even though incoming work remained subdued. During July, manufacturers also cut employment again, prolonging a period of job cuts across the sector. Companies continued to manage staffing levels carefully, as order growth stayed limited. Business optimism rose to its highest level since February, though sentiment still lagged behind its long-term average among eurozone goods producers.
Demand growth lags behind production expansion
Persistent weak exports remained a key obstacle to the manufacturing recovery. Several large eurozone economies reported fewer orders from international clients. The gains in other markets failed to offset these declines. Overall, domestic and export demand combined resulted in only a marginal increase in new work. These figures contrasted with the more robust rise in output and the quicker reduction in outstanding orders. Factories entered the third quarter with higher production levels than new business entering their order books.
Despite ongoing supply chain disruptions related to the Middle East conflict, cost pressures eased in July. Input price inflation slowed to a five-month low, and factory selling prices increased at their slowest rate since March. Delivery delays remained elevated but became less severe than during the previous five months. Manufacturers continued to face higher energy costs and transportation disruptions along key trade routes. This combination resulted in slower price growth but persistent operational pressures from supply delays and regional instability.
Broader economic indicators point to stronger growth
The manufacturing data coincided with signs of broader economic expansion across the currency bloc. The final July figure placed the eurozone composite output index at 51.9, its highest in five months. This measure, which includes manufacturing and services, remained above the 50 threshold signaling growth. Factory activity was part of a wider increase in private sector output during the month. However, the manufacturing survey indicated that production growth still outpaced the new orders needed to sustain this output.
Eurostat reported that eurozone gross domestic product increased by 0.4% in the second quarter compared to the previous three months. The economy had experienced no quarterly growth in the first quarter. Inflation rate climbed to 2.9% in July from 2.8% in June. Unemployment remained steady at 6.3% in June. Both the official statistics and July PMI data pointed to stronger economic activity amid ongoing price and demand pressures. Factory production hit its highest pace since early 2022, yet new work and exports stayed relatively weak.