Eurozone factory sector nears stabilisation as output expands in July

According to the latest HCOB Eurozone Manufacturing PMI, compiled by S&P Global, the headline index rose to 49.8 in July, up from 49.5 in June. Though still marginally below the 50.0 threshold that separates growth from contraction, this marked the highest reading in three years, indicating a broad stabilisation in operating conditions across the bloc’s goods-producing sector.

Among euro area members, Ireland posted the highest PMI at 53.2, despite easing to a two-month low. The Netherlands and Spain both reported strong momentum, each hitting 51.9—marking the fastest expansion in 14 and seven months, respectively. Greece continued its uninterrupted growth sequence for the 30^th straight month at 51.7, S&P Global said in a press release.

Italy saw conditions stabilise with a PMI of 49.8—its highest in 16 months—while Germany’s index edged up to 49.1, a near three-year high. France and Austria, however, tied for the weakest performance among surveyed countries, each posting 48.2.

Factory output growth moderated slightly from June and was the weakest since March, held back by a renewed—albeit mild—decline in total new orders. Export demand, including intra-eurozone trade, also fell after briefly stabilising in June, with July recording the sharpest drop in four months.

Despite the softer demand, manufacturers appeared more cautious in their retrenchment efforts. Job shedding was the least severe in 23 months, and purchasing activity declined at the slowest pace in over three years.

Input costs stabilised after three months of declines, and output prices remained broadly unchanged in July, suggesting muted inflationary pressures. However, average lead times for input deliveries lengthened for the second consecutive month, with the rate of delay the sharpest since November 2022, indicating mild re-emergence of supply-side bottlenecks.

Eurozone manufacturers remained generally optimistic about the year ahead, although the level of confidence eased slightly from June’s 40-month high. Business expectations remained just above the long-term average, signalling hope for a gradual recovery despite prevailing challenges in external demand.

Commenting on the PMI data, Dr. Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, said: “Manufacturing in the eurozone is cautiously regaining momentum. It is primarily the smaller economies that offer reasons for optimism. The PMIs from Spain and the Netherlands indicate accelerated economic growth, while Ireland and Greece remain in expansion territory. In the three largest economies as well as Austria, the PMI signals that the industrial recession has significantly eased. This broadens the scope of the recovery. With the newly agreed trade framework between the EU and the US, uncertainty should decline, and the signs point to a continued upward trend in the coming months.

“France is currently the biggest drag on growth in the eurozone’s manufacturing sector. It is particularly discouraging that production in France has declined over the past two months, while employment has slightly increased during the same period. The problem lies in the resulting drop in productivity, which makes economic growth even harder to achieve. In Germany, the situation is reversed: production is growing while employment is being reduced. France is also burdened by the prospect of an austerity budget and the associated risk of the current government stepping down. This contrasts with Germany, where much of the growth hopes rest on expansionary fiscal policy and the political situation is significantly more stable than in France. Less political and fiscal uncertainty in the eurozone’s second-largest economy would be important to help the eurozone manufacturing sector achieve sustainable growth overall.

“Supply chains remain relatively strained. Delivery times have lengthened. Given the fragility of the recovery, it is not demand that is causing customers to wait longer for their goods. Volatile US tariff policies and uncertainty stemming from geopolitical tensions may play a key role here. We expect that companies will continue to face sudden supply chain disruptions for the foreseeable future.”

ALCHEMPro News Desk (KD)