China widens industrial lead over Europe but figures not straightforward

Claire Lemaire

China has pulled ahead of Europe in terms of factory output but the numbers, and what they mean, were not as straightforward as they may look.

China’s industrial output increased by 5.8 per cent year-on-year in May, according to figures published by China’s National Bureau of Statistics, according to the Financial Times. In contrast, eurozone industrial production fell by 2.4 per cent in April compared with March, a recent Eurostat report revealed.

While the divergence appeared stark, structural factors and statistical inconsistencies made the comparison less straightforward.

“These numbers should absolutely not be compared just like that,” Hans Dewachter, chief economist at Belgian bank KBC and professor of Macro-Finance at KU Leuven, told Brussels Signal on June 17.

“A country such as China has very high growth numbers — approximately 5 per cent per year — while in the EU it is typically 1 per cent and a bit more, so comparing two economies that are so different does not make sense to assess the state of the EU economy,” Dewachter said.

“That being said, negative growth is of course a bad sign”, he added.

China’s output figures were value-added, excluding intermediate input costs, while the European Union used gross production volumes.

Ruben Dewitte, an economist at ING bank, told Brussels Signal on June 17 that distinction mattered because: “If intermediate inputs become less costly, you might observe an increase in value-added output as published by China. However, this change would not directly impact the total output number published by the EU.”

The eurozone decline followed a surge in March as firms rushed orders ahead of new US import tariffs.

Dewitte and others pointed to “front-loading” as a key factor.

KBC financial markets analyst Matthias Janssens told Brussels Signal on June 17: “Companies in March were ramping up production to export but then hit the brakes in April after Trump announced the high tariffs.”

ING’s June 13 report noted that April’s fall in eurozone production followed a strong first-quarter performance. That, the bank said, was driven by “front-loading” of exports to the US ahead of higher tariffs.

With the rush ending in March, the April figures reflected a “payback” effect. Year-on-year, eurozone output remained up by 0.8 per cent.

The same ING note emphasised that the aggregate figure masked country-level divergence.

Ireland’s output dropped by 15.2 per cent in April after rising 14 per cent in March, a distortion caused by contract manufacturing and multinational tax structures. Italy, by contrast, recorded a slight improvement.

According to the EU statistical office Eurostat’s June 13 release, the eurozone goods trade surplus fell from €37.3 billion in March to €9.9 billion in April.

Compared to April 2024, the surplus declined by €3.7 billion. The largest contribution came from a reduced surplus in chemicals, down from €42.8 billion to €22.1 billion.

Labour costs also remained a drag. In the first quarter of 2025, EU wages and salaries rose 4.2 per cent year-on-year, with non-wage costs increasing by 3.8 per cent.

In the eurozone, both components grew by 3.4 per cent, another Eurostat report showed on June 16.

Dewachter linked this to long-term competitive erosion in energy-intensive sectors, noting that Belgium and Germany were particularly exposed.

The European Commission’s trade monitoring tool warned of “harmful increases” in imports from China.

In May, the top categories flagged for sudden volume increases at lower prices included metals, machinery and equipment and chemicals. EC President Ursula von der Leyen launched a dedicated import-surveillance task force on April 7 to assess whether diverted Chinese goods are undercutting EU manufacturers.

Despite overcapacity concerns, Chinese industry remained the core driver of growth. According to a June 16 ING report, the country was still on track to meet its 2025 GDP target.

Year-to-date industrial production rose 6.3 per cent, while retail sales gained 5.0 per cent. The fastest growth came in high-tech segments, including rail, aerospace and electrical equipment.

ING highlighted that trade-in subsidies for consumer durables boosted appliance sales by 53 per cent year-on-year in May, while the “eat, drink, and play” sectors also saw double-digit growth.

Janssens said Europe’s industry faced broader challenges. “Especially the German industrial powerhouse is not doing great. There’s strong competition from abroad, higher energy prices, and weaker external demand.”

He added that US tariffs continued to create uncertainty. “Companies were front-running [US President Donald] Trump’s tariff announcement in March, then cut back in April. That helps explain the sharp month-on-month drop in euro-area production.”

As energy prices rebounded — with Brent again near $80/bbl — ING noted in its June 13 industrial outlook that pressure on manufacturers may rise again.

Some optimism remained, though. German fiscal stimulus and European defence spending have supported new orders and stockpiles were declining across parts of the eurozone, offering hope that the inventory cycle may turn.

Still, Dewachter warned that Europe’s industrial malaise was not new. “It is a long recession, already for several months … a sort industrial recession,” he said.