BRUSSELS / RankWire.AI / – Eurozone manufacturing activity picked up in July, with production increasing at its fastest rate since March 2022. The S&P Global purchasing managers’ index for the sector rose to 51.9 from 51.4 in June. Readings above 50 denote expansion. Although the final figure was slightly below the initial estimate of 52.0, the data indicated a broader sectoral improvement, despite weaker demand compared to the rise in factory output.
The manufacturing output index climbed to 52.9 from 51.7, reaching a level not seen in nearly four and a half years. Firms increased production even as new orders grew only marginally. Export orders declined once again, with decreases noted in France, Spain, Italy and Austria. Gains in other member states did not fully offset those losses. The gap between production and demand revealed that manufacturers continued to rely on orders made in previous months.
Factories accelerated the clearing of unfinished work at the fastest rate since January, reducing their existing order backlogs. This decline enabled companies to sustain higher output without a corresponding rise in new sales. Additionally, manufacturers once again cut staffing levels during July. Business confidence improved, reaching its strongest level since February, yet it remained below the long-term average. Consequently, the sector entered the third quarter with higher output, fewer backlogs, and limited growth in incoming work.
Export demand continues to face challenges
Weak international sales persisted as a major factor hindering the eurozone’s manufacturing recovery. New export orders fell across key industrial economies, while domestic demand provided only modest support. The growth in new business was much slower than production. Firms fulfilled current production needs mainly by completing existing contracts and reducing pending workloads. July’s data demonstrated ongoing factory expansion but also underscored the persistent gap between goods produced and new orders received.
Input cost inflation decelerated to its lowest point in five months, despite ongoing disruptions in global shipping. Prices at which manufacturers sold their goods increased at the slowest pace since March. Delivery times from suppliers remained longer than usual, although delays had eased compared to the previous five months. Rising energy costs and transportation issues related to Middle East instability continued to impact supply chains, even as cost growth moderated.
Broader economic activity shows signs of strengthening across the euro area
This manufacturing upturn was part of a wider increase in private sector activity across the eurozone. The composite output index, which reflects both manufacturing and service sectors, reached 51.9 in July. This marked its highest point in five months and kept the measure within expansion territory. Manufacturing contributed notably through higher production levels, yet demand, export performance, and employment figures for the sector remained weaker than the overall output index during the start of the quarter.
Eurostat reported a 0.4% increase in eurozone gross domestic product during the second quarter compared with the previous three months. There was no quarterly growth in the first quarter. Inflation rose to 2.9% in July from 2.8% in June, while unemployment held steady at 6.3% in June. Despite signals of stronger economic activity from official data and business surveys, factories continued to face soft demand, declining exports, and staffing cuts.