Eurozone factories recorded a notable upswing in production in July, with the S&P Global Eurozone Manufacturing PMI rising to 51.9 from June's 51.4. That headline reading marked the highest level since April but fell slightly short of the preliminary 52.0 estimate.
An output subindex, which feeds into the composite PMI due for release on Wednesday, climbed to 52.9 from 51.7 - its strongest reading since March 2022. Readings above 50.0 indicate expansion.
Despite the stronger production figures, the survey pointed to an uneven recovery. Output gains were heavily influenced by firms completing work already on their books rather than by a broad pickup in new orders. The index for new orders increased only marginally in July and lagged the pace of output growth, suggesting manufacturers are drawing down backlogs to sustain activity.
"Euro zone factories are enjoying something of a summer growth spurt ... However, there are signs that this good news may prove short-lived, with momentum at risk of fading as autumn approaches," said Chris Williamson, chief business economist at S&P Global Market Intelligence.
Export orders slipped again in July, with falls in France, Spain, Italy and Austria outweighing gains in other markets. Firms cleared unfinished work at the steepest rate since January, underscoring how much recent output gains have been powered by prior-month demand rather than fresh inflows.
Reflecting lingering caution among producers, factory payrolls declined for a further month in July, extending a sequence of job cuts as companies guarded against a potential slowdown in activity.
On the price front, input cost inflation eased to a five-month low and factory gate prices rose at their weakest pace since March. Nevertheless, inflationary pressures remained present across the common currency area, with headline inflation measured at 2.9% in July, up from 2.8% in June.
Supply chain disruptions tied to the ongoing conflict in the Middle East continue to affect manufacturers, contributing to elevated, if slightly less acute, logistical pressures. The survey noted supply chain pressures were the least severe in five months but still above normal levels.
Monetary policy considerations remain in focus. Three European Central Bank policymakers said last month that inflation risks are high and that the bank may need to raise interest rates again in response to the Iran war, though they stopped short of explicitly calling for a September rate increase.
Business sentiment among goods producers improved modestly, with confidence rising to its highest level since February, but it stayed below its long-run average, indicating a cautious outlook. Official data also showed the eurozone economy expanded by 0.4% last quarter, growing faster than previously expected.
Taken together, the PMI points to a recovery in manufacturing output that remains dependent on the clearance of previous orders and vulnerable to weaker new work inflows, continued supply chain disruption and lingering inflationary pressures.