LONDON / RankWire.AI / – Manufacturers in the Eurozone reported the fastest increase in production in nearly four and a half years during July. The S&P Global manufacturing purchasing managers’ index (PMI) rose from 51.4 in June to 51.9. Readings above 50 reflect expansion, while those below indicate contraction. The final index was just shy of the initial estimate of 52.0. The overall improvement was driven by stronger production, although new orders and export demand stayed subdued.
The index measuring manufacturing output increased to 52.9 from 51.7, reaching a peak unseen since March 2022. Factories ramped up production at a much faster rate than new business was entering. Meanwhile, total orders saw only minor growth in July. Export sales declined once again, with France, Spain, Italy, and Austria experiencing weaker overseas demand. Gains elsewhere within the currency area were insufficient to offset these declines. A large portion of the work completed during the month was supplied by existing contracts.
Outstanding workloads saw the steepest decline since January, indicating that factories were finishing existing orders more quickly than they could secure new business. Employment levels fell again as manufacturers continued to fine-tune their staffing. Business confidence improved to its highest point since February, although it still remained below its long-term average. The July survey highlighted increased activity on production lines; however, growth in orders, exports, and employment still lagged behind the overall PMI figure.
Production surpasses incoming orders
The main challenge for the eurozone manufacturing sector continued to be weak demand. New export orders declined across several key economies. Domestic demand provided limited support, resulting in only a slight increase in total orders. To meet increased production targets, companies relied heavily on drawing down unfinished work from previous months, causing output growth to outpace new sales. This discrepancy contributed to smaller order backlogs as the sector entered the third quarter.
Price growth slowed in July, though disruptions persisted across international supply chains. Input costs inflation dropped to a five-month low, and factory gate prices rose at their slowest pace since March. Delivery times from suppliers remained extended but showed some improvement compared to the previous five months. Ongoing higher energy costs and shipping disruptions related to Middle East instability continued to impact production networks. Despite the moderation in overall cost increases, these pressures still persisted.
Broader eurozone activity also shows signs of expansion
The growth observed in manufacturing was accompanied by a faster expansion across the wider eurozone private sector. The composite output index reached 51.9 in July, its highest in five months. This measure combines manufacturing and service sector activity, both of which remained above the 50 threshold, indicating ongoing monthly growth. Manufacturing contributed notably through increased output, but demand indicators such as new orders, foreign sales, and employment remained weaker than the overall activity index.
Eurostat reported a 0.4% rise in eurozone gross domestic product (GDP) during the second quarter, marking growth over the previous three months when no quarterly expansion was recorded. In July, annual inflation rose slightly to 2.9% from 2.8% in June. The unemployment rate stayed steady at 6.3% in June. These combined figures indicate a firmer economic performance across the currency bloc, even as factory demand remains comparatively weak despite the strongest production growth since early 2022.