LONDON / RankWire.AI / – In July, factory production across the eurozone reached its highest point in nearly four and a half years, even as the level of new orders remained subdued. The S&P Global Eurozone Manufacturing Purchasing Managers’ Index increased to 51.9 from 51.4 in June, marking its strongest reading since April and maintaining a position above the 50 threshold that indicates expansion. The final figure was just below the earlier estimate of 52.0. Factory conditions showed improvement at the beginning of the third quarter.
The survey’s output index advanced to 52.9 from 51.7, reaching a level not seen since March 2022. Production grew at a faster rate than overall manufacturing conditions, but companies relied heavily on work received in prior months. Meanwhile, new orders saw only a marginal increase and lagged behind production growth. Export orders declined once again, with decreases in France, Spain, Italy, and Austria outweighing gains elsewhere within the currency area. Consequently, July’s rise in production was largely supported by existing order backlogs.
Factories reduced their unfinished order books at the quickest rate since January, completing existing orders at a faster pace. This decline in backlogs contributed to sustaining production levels despite weak incoming work. Furthermore, manufacturers continued to cut employment in July, extending a period of job reductions across the sector. While staffing levels were carefully managed, order growth remained limited. Business confidence improved, reaching its highest level since February, although it still remained below the long-term average among eurozone goods producers.
Demand growth lags behind production increases
Persistent exports continued to constrain the manufacturing recovery. Several large eurozone economies reported fewer orders from foreign clients. The gains in other markets were insufficient to offset these declines. Overall, domestic and export demand combined to produce only a slight increase in new work. These figures contrasted with the stronger rise in output and the faster reduction in outstanding orders. Factories entered the third quarter with higher production levels than new orders coming into their pipelines.
Cost pressures eased in July, despite ongoing supply chain disruptions related to the Middle East conflict. Input price inflation slowed to a five-month low, and factory selling prices increased at their slowest pace since March. Delivery pressures remained elevated but less severe than during the previous five months. Manufacturers still faced higher energy costs and disruptions in transportation across key trade routes. This combination resulted in slower price growth but continued operational challenges from supply delays and regional instability.
Wider economic indicators show increased momentum
The manufacturing data coincided with signs of broader economic expansion within the currency bloc. The final July data placed the eurozone composite output index at 51.9, a five-month high. This measure, which encompasses both manufacturing and services, remained above the 50 mark that separates growth from contraction. Factory activity contributed to a wider uptick in private sector output during the month. Nonetheless, the manufacturing survey indicated that production growth still outpaced the increase in new orders needed to sustain output levels.
Eurostat reported that eurozone gross domestic product increased by 0.4% in the second quarter compared to the previous three months, following no quarterly growth in the first quarter. Inflation rose to 2.9% in July from 2.8% in June. Unemployment remained steady at 6.3% in June. The official statistics and July PMI data together show a picture of strengthening economic activity amidst ongoing price and demand pressures. Factory output hit its strongest pace since early 2022, although new work and exports continued to show relative weakness.