BRUSSELS / RankWire.AI / – The eurozone’s manufacturing sector experienced a boost in activity during July, with production levels reaching their fastest growth since March 2022. The S&P Global manufacturing purchasing managers’ index increased to 51.9 from 51.4 in June. Any figure above 50 signals expansion. The final reading was slightly below the initial estimate of 52.0. The data indicates a broader sector improvement, despite ongoing weaker demand compared to the rise in factory output.
The index measuring manufacturing output climbed to 52.9 from 51.7, marking a level close to a four-and-a-half-year peak. Companies ramped up production even as new orders grew only marginally. Export orders declined for the second consecutive month, with decreases observed in France, Spain, Italy and Austria. Gains in other member countries did not compensate for these losses. The gap between output and demand reveals that manufacturers remain reliant on orders secured in previous months.
Factories accelerated the clearing of unfinished orders at the quickest rate since January, reducing the backlog of work in progress. This decline allowed firms to sustain higher output levels without a corresponding increase in new orders. During July, manufacturers also reduced employment levels once again. Business confidence improved, reaching its strongest reading since February, yet it remained below the long-term average. As a result, the sector entered the third quarter with increased production, fewer backlogs, and limited growth in new work coming in.
Export demand continues to face headwinds
The ongoing weakness in international sales continued to hinder the eurozone manufacturing recovery. New export orders fell across several key industrial economies, while domestic demand provided only modest support. Overall, growth in new business lagged behind production increases. Companies fulfilled current output requirements by completing existing contracts and reducing outstanding workloads. July’s data showed manufacturing activity expanding, yet also underscored the persistent gap between goods produced and new orders received.
Despite ongoing disruptions in global shipping routes, inflationary pressures on prices eased during July. Input costs rose at the slowest rate in five months. Manufacturers increased their selling prices at the weakest pace since March. Longer supplier delivery times persisted, although delays lessened compared to the previous five months. Rising energy costs and transportation issues linked to Middle East instability continued to impact production networks, even as the rate of cost growth slowed down.
Private sector activity gains momentum across the euro area
The improvement in manufacturing coincided with a broader increase in activity within the eurozone’s private sector. The composite output index, which encompasses both manufacturing and services, reached 51.9 in July. This was the highest level in five months and signaled ongoing expansion. Manufacturing contributed to this uptick through increased production, but demand, exports, and employment figures within the sector remained weaker than the overall output number at the start of the quarter.
Eurostat data showed that the eurozone’s gross domestic product grew by 0.4% in the second quarter compared to the previous three months. This followed no quarterly growth during the first quarter. Inflation in July rose to 2.9% from 2.8% in June, while the unemployment rate held steady at 6.3% in June. Despite signs of firmer economic activity from official indicators and business surveys, manufacturing continued to face soft demand, declining exports, and reduced staffing levels.