BRUSSELS / RankWire.AI / – The eurozone’s factory sector experienced an uptick in activity during July, with production levels reaching their fastest rate since March 2022. The S&P Global manufacturing purchasing managers’ index increased to 51.9 from 51.4 in June. A reading above 50 signals expansion. The final result was slightly below the initial estimate of 52.0. This indicates a broader positive trend across the industry, although demand remained subdued compared to the rise in factory output.
The index measuring manufacturing output climbed from 51.7 to 52.9, hitting a level not seen in nearly four and a half years. Production was boosted even as new orders grew only marginally. Export demand declined once again, with decreases observed in France, Spain, Italy, and Austria. While some member states saw improvements, these gains did not compensate for the losses elsewhere. The gap between output and new orders suggests that manufacturers continued to rely heavily on previously booked orders.
Factories worked through their backlog of unfinished work at the fastest rate since January, reducing the pipeline of pending orders. This reduction allowed companies to sustain higher output levels without a corresponding rise in new business. During July, manufacturers also cut back on staffing levels once more. Business optimism rose to its highest point since February but remained below the historical average. As a result, the sector entered the third quarter with increased production, fewer backlogs, and limited growth in new work.
Export Markets Continue to Weaken
The eurozone’s manufacturing recovery was hindered by ongoing weak foreign sales. New export orders declined across several key industrial nations, while domestic demand provided only modest support. Growth in total new business was much slower than manufacturing output. Companies fulfilled current production needs by completing existing contracts and reducing backlogs. The July data indicated continued factory activity expansion, but also underscored the persistent gap between production and incoming orders.
Despite ongoing disruptions to international shipping routes, inflationary pressures on prices eased in July. Input costs rose at their slowest pace in five months. Manufacturers increased their selling prices at the weakest rate since March. Supplier delivery times remained extended but showed improvement over the previous five months. Rising energy costs and transportation issues related to Middle East instability continued to impact production chains, even as the growth rate of costs slowed.
Broader Economic Growth Observed in the Eurozone
This manufacturing uptick coincided with a broader expansion in private sector activity throughout the eurozone. The composite output index, encompassing both manufacturing and services sectors, reached 51.9 in July. This was the highest level in five months and indicated continued growth. Manufacturing contributed significantly to this increase through higher production levels. However, demand, export performance, and employment indicators within the sector remained weaker than the overall output figure 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. In contrast, there was no quarterly growth during the first quarter. Inflation in July rose slightly to 2.9% from 2.8% in June. The unemployment rate held steady at 6.3% in June. Official economic indicators and business surveys pointed to an increase in activity, though factory demand remained soft, with declining exports and lower staffing levels continuing to pose challenges.