LONDON / RankWire.AI / – Economic activity across the eurozone is showing signs of broader improvement, supported by rising manufacturing output despite persistent challenges in new orders. The S&P Global Eurozone Manufacturing Purchasing Managers’ Index increased to 51.9 from 51.4 in June, reaching its highest point since April. This figure stays above the 50 mark indicating expansion, although it fell just short of an initial estimate of 52.0. The data suggests factory conditions began to improve at the start of the third quarter.
The survey’s output index advanced to 52.9 from 51.7, marking the strongest reading since March 2022. While production growth outpaced the overall manufacturing environment, firms remained heavily reliant on backlog orders from previous months. Meanwhile, new orders grew only modestly, lagging behind production increases, and export orders declined once more. Declines were notably reported in France, Spain, Italy, and Austria, overshadowing gains elsewhere within the currency area. Consequently, July’s production increase was largely driven by existing order backlogs rather than fresh demand.
Factories expedited the reduction of unfinished work at the fastest rate since January, as they completed existing orders. This decline in backlogs supported ongoing production, even as incoming work remained subdued. Companies also continued to cut jobs during July, extending a sector-wide trend of employment reduction. Firms managed staffing carefully amid limited order growth, though business confidence improved to its highest level since February. Despite this, sentiment among eurozone manufacturers remained below their long-term average.
Demand growth remains behind production expansion
Continued weakness in exports has acted as a significant obstacle to the manufacturing sector’s recovery. Several large eurozone economies reported a decline in foreign orders, and gains from other markets failed to offset these drops. The combination of domestic and export demand resulted in only a slight increase in total new work. This contrasted with the more robust rise in output and the quicker reduction in outstanding orders. As a result, factories entered the third quarter with higher production levels than new orders entering their pipelines.
Cost pressures eased in July despite ongoing supply chain disruptions linked to the Middle East conflict. Input prices rose at their slowest pace in five months. Meanwhile, factory selling prices increased at their weakest rate since March. Delivery delays persisted but became less severe than in the previous five months. Manufacturers faced persistent higher energy costs and transportation disruptions across key trade routes, which kept operational pressures high. Overall, slower price growth was accompanied by ongoing supply delays and regional instability, affecting manufacturing dynamics.
Wider economic activity demonstrates stronger growth signals
These manufacturing indicators coincide with signs of broader economic expansion within the eurozone. The final July reading for the composite output index reached 51.9, a five-month high, encompassing both manufacturing and services sectors. This measure remains above the 50 threshold that separates growth from contraction and indicates a rise in private sector activity during the month. Nonetheless, the survey highlighted that manufacturing output growth still outpaced the growth in new orders necessary to sustain higher production levels.
Eurostat reports that eurozone gross domestic product increased by 0.4% in the second quarter compared to the previous three months, following no growth in the first quarter. Inflation rose to 2.9% in July from 2.8% in June, while unemployment remained steady at 6.3% in June. The official data alongside the July PMI points to a resilient economy experiencing continued price and demand pressures. Factory output reached its strongest pace since early 2022, yet new work and export orders stayed relatively weak.