LONDON / RankWire.AI / – According to S&P Global, manufacturing activity across the eurozone expanded at its quickest pace in almost four and a half years during July. The manufacturing purchasing managers’ index (PMI) increased to 51.9 from 51.4 in June. Readings above 50 signify growth, while those below indicate contraction. The final PMI figure was slightly below the preliminary estimate of 52.0. Increased production largely drove the overall improvement, although new orders and export demand stayed relatively weak.
The manufacturing output index climbed to 52.9 from 51.7, reaching its highest point since March 2022. Factories ramped up production at a considerably faster rate than the inflow of new orders. During July, total orders only saw marginal growth. Export sales declined once again, with France, Spain, Italy, and Austria reporting weaker international demand. Gains elsewhere within the currency area did not fully offset these declines. Much of the work completed in July came from existing contracts, which supplied the majority of output.
Manufacturers reduced their outstanding workloads at the fastest rate since January. This decline indicated that factories were finishing previous orders more quickly than they were acquiring new business. Employment levels fell again as companies adjusted staffing accordingly. Business confidence improved to its highest level since February but remained below its long-term average. The July survey highlighted increased activity in production lines, yet order growth, exports, and employment figures continued to lag behind the overall PMI reading.
Production Outpaces New Business Intake
The main challenge for the eurozone manufacturing sector remained subdued demand conditions. New export orders fell across several key economies. Domestic demand provided limited support, resulting in only a slight increase in total orders. To meet higher production targets, companies drew down existing work-in-progress from previous months. This resulted in output growth outstripping new sales, leading to a noticeable gap between these indicators as the sector entered the third quarter with smaller order backlogs.
Price growth slowed in July, even as manufacturers continued to face disruptions along international supply lines. Inflation of input costs decelerated to its lowest level in five months. Factory gate prices rose at their slowest pace since March. Although supplier delivery times remained extended, they improved compared to the previous five months. Ongoing issues such as rising energy costs and shipping disruptions related to Middle East instability continued to impact supply chains. Despite the moderation in overall cost increases, these pressures persisted.
Broader Eurozone Activity Also Accelerates
The uptick in manufacturing was accompanied by a quicker expansion across the wider eurozone private sector. The composite output index reached 51.9 in July, its highest point in five months. This indicator combines data from both manufacturing and services sectors. It remained above the 50 threshold, signifying ongoing growth. While manufacturing contributed through faster production, demand indicators such as new orders, export sales, and employment showed weaker performance compared to the overall activity measure.
Eurostat reported a 0.4% increase in eurozone gross domestic product (GDP) during the second quarter. The figure reflects growth over the previous three months, which saw no quarterly expansion. Inflation in July rose to 2.9% from 2.8% in June. The unemployment rate held steady at 6.3% in June. These combined data points indicate a strengthening economy within the currency bloc, despite persistent weakness in factory demand, even amid the strongest production growth since early 2022.