LONDON / RankWire.AI / – Eurozone factory output expanded at its fastest pace in nearly four and a half years in July, while new demand remained weak. The S&P Global Eurozone Manufacturing Purchasing Managers’ Index rose to 51.9 from 51.4 in June. That marked its strongest reading since April and kept the measure above the 50 threshold that signals expansion. The final result came just below an earlier estimate of 52.0. Factory conditions improved at the start of the third quarter.
The survey’s output index climbed to 52.9 from 51.7, reaching its highest level since March 2022. Production rose faster than overall manufacturing conditions, but companies depended heavily on work received in previous months. New orders increased only marginally and lagged the pace of production. Export orders fell again. Declines in France, Spain, Italy and Austria outweighed gains elsewhere in the currency area. July’s production rise therefore drew significant support from existing order books.
Factories reduced unfinished business at the quickest rate since January as they completed orders already in hand. That decline in backlogs helped sustain production even as incoming work stayed subdued. Manufacturers also cut employment again during July, extending a period of job reductions across the sector. Companies continued to manage staffing levels carefully while order growth remained limited. Business confidence improved to its highest point since February, although sentiment remained below its long-term average among eurozone goods producers.
Demand growth trails production gains
Weak exports remained a central restraint on the manufacturing recovery. Producers in several large eurozone economies reported fewer orders from foreign customers. Gains in other markets failed to offset those declines. Domestic and export demand together produced only a slight rise in total new work. The figures contrasted with the stronger increase in output and the faster reduction in outstanding orders. Factories entered the third quarter with more production activity than fresh business entering their order books.
Cost pressures eased in July despite continued disruption to supply chains linked to the Middle East conflict. Input price inflation slowed to a five-month low. Factory selling prices rose at their weakest pace since March. Delivery pressures remained elevated but became less severe than during the previous five months. Manufacturers still faced higher energy costs and transport disruption across key trade routes. The combination left factories with slower price growth but continued operational pressure from supply delays and regional instability.
Broader economy records stronger growth
The manufacturing figures arrived alongside signs of wider economic growth across the currency bloc. Final July data placed the eurozone composite output index at 51.9, a five-month high. The measure covers manufacturing and services and remained above the level that separates expansion from contraction. Factory activity formed part of a broader increase in private sector output during the month. However, the manufacturing survey showed that production growth still ran ahead of the new orders needed to support output.
Eurostat reported that eurozone gross domestic product grew 0.4% in the second quarter from the previous three months. The economy had recorded no quarterly growth in the first quarter. Annual inflation rose to 2.9% in July from 2.8% in June. Unemployment held at 6.3% in June. The official figures and July PMI data showed stronger economic activity alongside continued price and demand pressures. Factory production reached its strongest pace since early 2022, but new work and exports remained comparatively weak.