LONDON / RankWire.AI / – Manufacturers across the Eurozone saw a significant boost in production during July, marking the fastest expansion in nearly four and a half years. The S&P Global manufacturing purchasing managers’ index climbed to 51.9 from 51.4 in June. Readings above 50 denote growth, whereas those below indicate contraction. The final figure was just below the initial estimate of 52.0. The overall increase was primarily driven by stronger output, although new orders and export demand continued to be subdued.
The manufacturing output index increased to 52.9 from 51.7, reaching its highest point since March 2022. Factories accelerated their production rates, outpacing the arrival of new business. During July, total orders grew only marginally, while export sales declined once again, with France, Spain, Italy, and Austria reporting weaker overseas demand. Gains in other parts of the currency area were not enough to offset these declines. Much of the work completed during the month was supported by existing contracts rather than new business.
Outstanding workloads saw the sharpest reduction since January, indicating factories were completing previous orders faster than securing new ones. Employment levels fell again as producers continued to adjust staffing. Business confidence rose to its highest since February but still remained below its long-term average. The July survey highlighted increased production activity, but order growth, export demand, and employment remained behind the overall index.
Production surpasses new demand
Demand conditions continued to be the main weakness in the eurozone manufacturing sector. New export orders declined across several key economies. Domestic business contributed limited support, producing only a slight increase in total orders. Companies increased output primarily by drawing down unfinished work from prior months, which caused production growth to outpace incoming sales. This resulted in a clear gap between production levels and new order backlogs as the sector entered the third quarter with fewer pending orders.
Price growth slowed in July, although ongoing disruptions across international supply routes continued to impact manufacturers. Input cost inflation decreased to its lowest point in five months, and factory gate prices rose at their slowest pace since March. Supplier delivery times remained extended but improved compared to the previous five months. The continued influence of higher energy costs and shipping disruptions linked to Middle East instability persisted, affecting production networks even as overall cost inflation slowed.
Broader eurozone activity also gains momentum
The manufacturing sector’s growth was accompanied by a faster expansion across the broader eurozone private sector. The composite output index reached 51.9 in July, its highest in five months, combining activity in factories and service providers. Though remaining above the 50 threshold, indicating monthly expansion, manufacturing contributed to this growth through increased production, while demand indicators such as new orders, foreign sales, and employment showed relative weakness compared to the overall output measure.
Eurostat reported a 0.4% rise in eurozone gross domestic product during the second quarter. This increase followed a period of no quarterly growth in the previous three months. In July, annual inflation edged up to 2.9% from 2.8% in June, and the unemployment rate remained steady at 6.3% in June. These figures together suggest a strengthening economy within the currency bloc, even as factory demand continues to show signs of weakness despite the notable production growth since early 2022.