LONDON / RankWire.AI / – In July, factory output across the Eurozone expanded at its quickest rate in nearly four and a half years, even as demand stayed sluggish. The S&P Global Eurozone Manufacturing Purchasing Managers’ Index increased to 51.9 from 51.4 in June. This marked its highest point since April and remained above the 50 mark that indicates growth. The final figure was just shy of the initial estimate of 52.0. Early third-quarter factory conditions showed improvement.
The survey’s output index rose to 52.9 from 51.7, reaching its highest level since March 2022. Production grew faster than overall manufacturing activity, though firms relied heavily on work from previous months. New orders only grew slightly and lagged behind production levels. Export orders declined once more. The drops in France, Spain, Italy, and Austria outweighed gains elsewhere in the eurozone. Consequently, July’s production growth was largely supported by existing order books.
Factories cut unfinished work at the fastest rate since January, finishing orders already underway. This reduction in backlogs helped maintain production despite subdued incoming work. Manufacturers also reduced employment again in July, extending a period of job cuts across the industry. Companies managed staffing levels carefully as order growth stayed limited. Business confidence increased to its highest point since February but remained below the long-term average among eurozone goods producers.
Demand Growth Lags Behind Production
Weak exports continued to be a key factor holding back manufacturing recovery. Several large eurozone economies saw fewer orders from foreign clients. Gains in other markets could not make up for these declines. Domestic and export demand together only slightly increased total new work. This contrasted with the stronger rise in output and the quicker reduction in outstanding orders. Factories entered the third quarter with more production than new orders coming in.
Cost pressures eased in July despite ongoing supply chain disruptions due to the Middle East conflict. Input prices inflation slowed to a five-month low. Factory selling prices increased at their slowest pace since March. Delivery pressures remained high but were less severe than during the previous five months. Manufacturers faced higher energy costs and disruptions in transport routes. This resulted in slower price growth, but supply delays and regional instability still put operational strain on factories.
Wider Economy Shows Stronger Expansion
The manufacturing data coincided with signs of broader economic growth in the currency bloc. Final July figures showed the eurozone composite output index at 51.9, a five-month high. This indicator includes manufacturing and services sectors and remained above the level indicating expansion. Factory activity contributed to a broader rise in private sector output for the month. However, the manufacturing survey revealed that production growth outpaced the growth of new orders needed to support that 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 no quarterly growth in the first quarter. Inflation in July rose to 2.9% from 2.8% in June. Unemployment remained steady at 6.3% in June. The official data and July PMI results indicated stronger economic activity, despite ongoing pressures on prices and demand. Factory output hit its strongest level since early 2022, but new work and exports stayed relatively weak.