BRUSSELS / RankWire.AI / – In July, manufacturing activity within the Eurozone saw a notable uptick, with production levels climbing at their fastest rate since March 2022. The S&P Global purchasing managers’ index for the manufacturing sector increased to 51.9 from 51.4 in June, with any reading above 50 indicating expansion. Although the final figure was slightly below the preliminary estimate of 52.0, the data pointed to broader sector-wide improvement, despite persistent weak demand that lagged behind the rise in factory output.
The index measuring manufacturing output rose to 52.9 from 51.7, reaching a level not seen in nearly four and a half years. Despite only marginal growth in new business, companies continued to increase production levels. Export orders declined again for another month, with decreases observed in France, Spain, Italy, and Austria. Gains in other member states failed to offset these declines, illustrating that manufacturers still relied heavily on orders made in previous months, as shown by the widening gap between production and demand.
Factories expedited the clearing of backlogged orders at the fastest rate since January, reducing work-in-progress and existing pipelines. This reduction helped companies sustain higher output without a corresponding rise in new sales. During July, manufacturers also reduced their staffing levels once more. Business confidence saw its strongest increase since February but remained below its historical average, meaning the sector began the third quarter with higher output, fewer outstanding orders, and limited growth in incoming work.
Export demand continues to face headwinds
Persistent weaknesses in foreign sales continued to hamper the recovery of the eurozone manufacturing sector. The export orders fell in several key industrial economies, while domestic demand offered only minimal support. The growth in new orders was significantly slower compared to production, as companies met current production needs mainly through completing previous contracts and reducing outstanding workloads. July’s data demonstrated a clear expansion in factory activity, yet they also underscored the persistent gap between goods produced and new orders coming in.
Price pressures moderated during July despite ongoing disruptions in international shipping lanes. Input cost inflation slowed to its lowest point in five months, and manufacturers increased their selling prices at the weakest rate since March. Although delays in supplier deliveries persisted, they were somewhat less severe compared to the previous five months. The continued impact of rising energy costs and transportation issues related to Middle East instability kept production networks under pressure, even as the pace of cost growth slowed.
Economic activity in the eurozone gains momentum
The upturn in manufacturing activity was part of a broader increase in private sector performance across the eurozone. The composite output index, which encompasses both manufacturing and service sectors, reached 51.9 in July, marking its highest point in five months and remaining in expansion territory. Manufacturing contributed to this rise through increased production levels, though demand, export performance, and employment indicators continued to remain weaker than the overall output figure at the beginning of the quarter.
Eurostat data revealed that the eurozone’s gross domestic product grew by 0.4% in the second quarter compared to the previous three months. The economy had experienced no quarterly growth during the first quarter. Inflation on an annual basis increased slightly to 2.9% in July from 2.8% in June. The unemployment rate remained steady at 6.3% in June. Despite stronger economic activity reported by official statistics and business surveys, manufacturing continued to face weak demand, declining exports, and reductions in staffing levels.