BRUSSELS / RankWire.AI / – Economic activity across the eurozone is showing signs of resilience, supported by a broad increase in private sector output in July. The Eurostat composite output index, which encompasses both manufacturing and services, reached 51.9 in July—its highest point in five months and firmly in expansion territory. This overall boost was driven mainly by stronger factory production, even as demand from exports and employment metrics remained comparatively subdued during the start of the third quarter.
Amid this positive trend, manufacturing activity in the eurozone gained momentum in July, with production expanding at its quickest rate since March 2022. The S&P Global manufacturing purchasing managers’ index increased to 51.9 from 51.4 in June. Any figure above 50 signals growth, although the final number was slightly below the initial estimate of 52.0. The data pointed to a broader improvement in the sector, but demand remained weaker relative to the rise in factory output.
The manufacturing output index rose to 52.9 from 51.7, marking a nearly four-and-a-half-year high. While firms ramped up production, new business growth was only marginal. Export orders declined again, with decreases noted in France, Spain, Italy, and Austria. Gains in other member countries did not offset these setbacks. The divergence between output and demand indicated that manufacturers continued to rely heavily on orders secured in prior months.
Factories accelerated the clearing of pending orders at the fastest rate since January, reducing their existing backlogs. This reduction allowed companies to sustain higher production levels without a corresponding increase in new sales. Additionally, manufacturers cut staffing levels once more in July. Business confidence improved to its highest point since February, yet it remained below the long-term average. Consequently, the sector entered the third quarter with increased output, fewer backlogs, and limited growth in incoming orders.
Export market remains under strain
Persistent weakness in international sales continued to impede the recovery of the eurozone manufacturing sector. New export orders declined across several key industrial economies, with domestic demand providing only modest support. The growth in total new business was significantly slower than production increases. Companies met their current output needs primarily through fulfilling existing contracts and reducing outstanding work. While factory activity expanded in July, the data underscored the ongoing gap between goods produced and fresh orders received.
Prices faced less upward pressure in July despite ongoing disruptions in global shipping routes. Input cost inflation slowed to its lowest level in five months, and manufacturers increased their selling prices at the weakest rate since March. Delivery times from suppliers continued to be longer than usual, although delays eased compared to the previous five months. The sustained rise in energy costs and ongoing transportation issues related to Middle East instability continued to impact production networks, even as the pace of cost growth moderated.
Wider economic activity demonstrates momentum across the euro area
This manufacturing uptick was part of a broader increase in private sector activity across the eurozone. The Eurostat report showed the composite output index, which combines factory and service sector data, reached 51.9 in July. This was its highest reading in five months, confirming ongoing expansion. Manufacturing contributed significantly to this growth through increased production, although demand, export, and employment figures remained relatively subdued compared to the overall output during this period.
The eurozone’s gross domestic product (GDP) expanded by 0.4% in the second quarter compared to the previous three months, according to Eurostat. This followed a period of no quarterly growth during the first quarter. Inflation rose to 2.9% in July from 2.8% in June, while unemployment held steady at 6.3% in June. Despite signs of increased economic activity from official data and business surveys, factories continued to face soft demand, declining exports, and reductions in staffing levels.