Eurozone factory growth eases in July but remains strong

Growth in the eurozone manufacturing sector eased a little in July but remained strong, according to a survey released on Monday.

IHS Markit’s final eurozone manufacturing purchasing managers’ index fell to 62.8 from 63.4 in June, marking the lowest level since March but ahead of the preliminary reading of 62.6. The sector has now recorded successive months of expansion since July 2020.

In Germany, the rate of growth hit a three-month high that was the third-highest on record, behind March and April. The PMI rose to 65.9 in July from 65.1 in June, coming in above the flash estimate of 65.6.

Chris Williamson, chief business economist at IHS Markit, said: "The fact that growth of eurozone manufacturing cooled slightly in July after a record-breaking expansion during the second quarter should not itself be a major cause for concern. But the July survey also brought further signs that manufacturers and their suppliers are struggling to raise production fast enough to meet demand, driving prices ever higher.

"Although growth of demand has come off the boil slightly as the initial boost from the reopening of the economy fades, the July survey showed inflows of new orders outstripping production to an extent unprecedented in the survey’s 24-year history."

Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said: "Overall, eurozone manufacturing output and new orders are still expanding briskly according to the PMIs, but supply-side constraints, maxed-out capacity utilisation and crippling input price inflation are holding the sector back, even as demand is now, arguably, rebounding even more strongly in the context of reopening.

"We see clear evidence of this in the official data, where production in the auto sector, and in other transport equipment, fell sharply in the first half of the year, despite soaring new orders. Judging by detailed survey evidence at the start of Q3, this situation persists. The good news is that firms are now scrambling to fill open positions in an attempt to clear swelling work backlogs, a trend which will add to the already clear improvement in the EZ labour market since reopening."