Global factories faced weaker demand and higher costs in July as Iran war grinds on

In July, global manufacturing activity slowed down due to the ongoing war in the Middle East, which led to weaker demand and higher costs for exporters. China, the world's second-largest economy, saw its growth in new orders slow to its weakest pace since January. While the eurozone's output surged, it was mainly due to firms clearing order backlogs rather than an increase in demand.

The S&P Global Eurozone Manufacturing Purchasing Managers' Index (PMI) rose to 51.9 in July, indicating growth but far below the previous month's 51.4. Carsten Brzeski, global head of macro at ING, noted that the eurozone economy is more resilient than feared, but a low-growth environment is expected soon. Inflation in the eurozone increased to 2.9% in July, adding to the case for another interest rate hike by the European Central Bank, which could further constrain demand.

Globally, factories faced elevated input costs in July. Germany experienced a strong start to the third quarter, but sustained growth seemed unlikely without resolving the Middle East conflict, due to oil price volatility and uncertainty. French factory activity contracted, while Italy's manufacturing industry saw slower growth.

Britain's manufacturing activity expanded for a ninth consecutive month in July but at the slowest pace in four months. In India, the manufacturing sector expanded at its slowest pace in nearly five years, while Japan's factory output grew at its fastest pace in over 12 years, driven by a 4½-year-high surge in new orders fueled by demand for artificial intelligence.