LONDON / RankWire.AI / – Eurozone manufacturers reported their fastest production growth in nearly four and a half years during July, largely driven by their efforts to draw down existing order backlogs. The S&P Global manufacturing purchasing managers’ index increased to 51.9 from 51.4 in June. Readings above 50 denote expansion, whereas those below suggest contraction. The final figure was just below the initial estimate of 52.0. The rise in overall output was mainly supported by stronger production, but new orders and export demand remained weak.
The manufacturing output index moved up to 52.9 from 51.7, marking its highest level since March 2022. Factories accelerated their production rates significantly more than new orders were coming in. During July, overall orders saw only modest growth. Export sales declined once again, with France, Spain, Italy and Austria reporting weaker international demand. Gains in other parts of the eurozone failed to compensate for these declines. Most of the work completed during the month was based on existing contracts.
The sector saw the steepest reduction in outstanding workloads since January, indicating factories were finishing earlier orders more quickly than they were receiving new business. Employment levels decreased again as companies adjusted staffing accordingly. Business confidence improved to its highest point since February, but it still remained below its long-term average. The July survey highlighted stronger activity in production lines, even as growth in new orders, exports, and employment lagged behind the headline index.
Production surpasses new demand
Weakness in demand remained the primary challenge for the eurozone manufacturing sector. New export orders declined across several key economies. Domestic demand provided limited support, with only marginal growth in total orders. To meet higher production targets, factories relied on reducing unfinished work from previous months, which resulted in output growing faster than incoming sales. This created a noticeable gap between production and new orders, as the sector entered the third quarter with smaller backlogs.
Price inflation slowed down in July, even though ongoing disruptions across international supply routes persisted. Input costs increased at the slowest rate in five months, and factory gate prices rose at their lowest pace since March. Despite some improvement, supplier delivery times remained longer than usual, impacted by energy expenses and shipping issues linked to instability in the Middle East. Although the overall rate of cost increase moderated, these supply chain pressures continued to weigh on production.
Broader eurozone activity also expands
This manufacturing growth was accompanied by a quicker expansion across the wider eurozone private sector. The composite output index reached 51.9 in July, its highest level in five months. This index combines activity across factories and service providers. While remaining above the 50 mark, indicating expansion, manufacturing contributed to the overall growth with faster production. However, demand indicators such as new orders, export sales, and employment showed weaker performances compared to the overall output measure.
Eurostat reported a 0.4% increase in eurozone gross domestic product during the second quarter, reflecting growth over the previous three months, which had shown no quarterly expansion. Inflation on an annual basis rose to 2.9% in July from 2.8% in June. The unemployment rate remained steady at 6.3% in June. These figures collectively point to a more resilient economy within the currency bloc, despite persistent weak demand in factories and ongoing supply chain challenges, even amid the strongest production gains since early 2022.