BRUSSELS / RankWire.AI / – In July, activity within the Eurozone manufacturing sector experienced a notable increase, marking its fastest growth 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. Although the final figure was slightly below the preliminary estimate of 52.0, the data reflected a broader sectoral improvement, even as demand continued to lag behind the rise in factory output.
The index for manufacturing output rose to 52.9 from 51.7, reaching a level not seen in nearly four and a half years. Companies increased production despite only modest growth in new orders. Export demand declined for the second consecutive month, with downturns recorded in France, Spain, Italy, and Austria. Gains in other member states failed to compensate for these declines. The gap between output and demand indicated that manufacturers still relied heavily on orders received in previous months.
Factories worked through unfinished orders at the fastest rate since January, reducing their backlog of work. This reduction allowed firms to sustain higher production levels without a corresponding rise in new sales. Additionally, manufacturers cut staffing levels again in July. Business confidence improved to its strongest level since February, yet it remained below the long-term average. Consequently, entering the third quarter, the sector showed increased output, decreased backlogs, and limited growth in new work inflows.
Export Demand Continues to Face Challenges
The recovery of the eurozone manufacturing sector remains constrained by sluggish foreign sales. New export orders declined across several major industrial economies, with domestic demand providing only limited support. Total new business growth lagged behind production increases, as companies relied on completing existing contracts and reducing their outstanding workloads. July’s data highlighted an expansion in factory activity, yet it also underscored the persistent gap between goods produced and new orders received.
Price pressures showed signs of easing in July despite ongoing disruptions in international shipping routes. Input cost inflation slowed to its lowest level in five months. Manufacturers raised their selling prices at the slowest pace since March. Delivery times from suppliers remained extended but improved compared to the previous five months. Elevated energy costs and transport issues related to Middle East instability continued to impact production networks, even as cost growth moderated.
Economic Activity Gains Momentum Across the Eurozone
The uptick in manufacturing coincided with broader growth in private sector activity across the eurozone. The composite output index, which includes both factories and service providers, reached 51.9 in July. This was the highest figure in five months and indicated ongoing expansion. Manufacturing contributed significantly to this growth through increased production. Nonetheless, demand, export activity, and employment metrics within the sector remained weaker than the overall output figure 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, following no growth in the first quarter. Inflation increased to 2.9% in July from 2.8% in June. Unemployment stayed steady at 6.3% in June. While official indicators and business surveys pointed to a strengthening economy, factory demand remained subdued, with exports declining and staffing levels decreasing.