Manufacturing activity in China experienced a slowdown in July amid ongoing disruptions linked to the five-month conflict in the Middle East, according to recent surveys. The prolonged hostilities have dampened demand and driven up costs for exporters, a trend also affecting manufacturing across much of Europe.

The conflict has severely restricted shipping through the Strait of Hormuz, a critical passage for energy exports from the Gulf region, causing a sharp rise in energy prices for manufacturers. In China, growth in new orders weakened to its slowest level since January, reflecting the broader impact of elevated costs and uncertain demand.

In contrast, Eurozone industrial output showed a moderate rebound, with the S&P Global Eurozone Manufacturing Purchasing Managers' Index (PMI) rising to 51.9 in July from 51.4 in June, just below an earlier estimated 52.0. A PMI reading above 50 signals expansion, but experts noted this increase primarily stemmed from companies working through existing order backlogs rather than a rise in fresh demand.

Carsten Brzeski, chief economist at ING, described the Eurozone's manufacturing environment as "a mixed bag," emphasizing that while the economy remains more resilient than expected, it is still facing a low-growth trajectory. He cautioned that sustained growth appears unlikely unless the situation in the Middle East improves significantly.

Inflation within the Eurozone climbed to 2.9% in July, up slightly from 2.8% in June. This rise has strengthened the case for further interest rate increases by the European Central Bank, measures that could further suppress consumer spending and manufacturing demand.

Across Europe, Germany's manufacturing sector showed solid growth in early July, but analysts expressed skepticism about the durability of this momentum without a resolution to the Middle Eastern conflict, given persistent volatility in oil prices and geopolitical uncertainty. Meanwhile, factory activity in France contracted again, and Italy saw its growth in manufacturing slow.

In the United Kingdom, which remains outside the European Union, manufacturing expanded for the ninth consecutive month in July, though at the slowest rate in four months. The UK’s manufacturing PMI indicated that the Iran-related conflict was beginning to affect production towards the end of July, adding an additional layer of pressure on the sector.

Globally, elevated input costs continued to challenge manufacturers, reflecting widespread inflationary pressures and uncertainty driven by the geopolitical crisis in the Middle East.