Euro Zone Factory Output Hits Near Four-Year High, But Demand Remains Weak

The Euro zone's factory output reached its highest level in nearly four-and-a-half years in July, but growth was largely driven by firms clearing order backlogs rather than rising demand. The S&P Global Eurozone Manufacturing PMI Index (PMI) rose to 51.9 in July from June's 51.4, just below a preliminary estimate of 52.0.

Chris Williamson, chief business economist at S&P Global Market Intelligence, noted that while factories are enjoying a 'summer growth spurt', momentum may be short-lived as autumn approaches. Orders rose only marginally in July, well below the pace of output growth, suggesting factories are running hot on old work rather than new business.

Export orders fell again, with declines in France, Spain, Italy, and Austria more than offsetting gains elsewhere. Factory employment fell for the third month in a row as companies grew cautious about a potential slowdown in work. Input cost inflation eased to a five-month low in July, but factory gate prices rose at their softest pace since March.

Business confidence edged up to its highest level since February, but remained below its long-run average. The Euro zone economy grew faster than expected last quarter, expanding 0.4%.