(BRUSSELS) - Factories and refineries in the 15 nations sharing the euro ratcheted down production in May at the fastest rate in nearly 16 years amid growing economic headwinds, according to official EU data on Monday.

The European Union's Eurostat data agency said industrial output in the eurozone fell 1.9 percent in May from April -- the steepest monthly decline since December 1992.

Despite the sharp pull-back, production was stronger than the 2.3 percent slump economists had forecast, as polled by Dow Jones Newswires.

"While industrial production can be highly volatile ..., the extent of the decline in May adds to the mounting fears that the eurozone economy is now weakening markedly," economist Howard Archer at consultants Global Insight said.

Over 12 months, industrial output fell 0.6 percent, Eurostat said, which was worse than the 0.4 percent increase that economists had expected.

The figures, which were adjusted for seasonal variations, marked a sharp pull-back from April, when output rose 1.0 percent over one month and jumped 4.0 percent over one year, according to revised figures from Eurostat.

"We think that May's decline ... reflects underlying deterioration: surging commodity prices, tightening credit conditions, weakening demand and euro appreciation are hurting the manufacturing sector," Lehman Brothers economist Lavinia Santovetti said.

The weaker May showing was driven by a fall in the production of durable consumer goods such as cars and appliances and non-durable consumer goods such as cosmetics, food and fuel, the data showed.

"Consumer goods production was particularly weak, thereby adding to the evidence that consumers are reining in spending as their purchasing power is squeezed by high energy and food prices," Archer said.

Geographically, the weakness was broad-based including in the biggest eurozone economies Germany, France and Italy.

In the 27-nation EU as a whole, industrial output fell 1.4 percent over one month in May and 0.6 percent over one year.

Looking ahead, economists predicted that the industrial sector would see further weakness although June data might show a slight, temporary improvement.

"The strong euro and the global economic downturn should cause a further slowdown in demand for eurozone industrial goods," said Ben May at consultants Capital Economics.

Although weaker industrial activity would weigh heavily on the overall economy, Global Insight's Archer said that slower growth would ease inflation pressures and keep the European Central Bank from raising interest rates.

"Markedly weaker eurozone growth, softening labour markets, extended tight credit conditions and the strong euro should largely contain and then increasingly dilute underlying inflation pressures over the coming months," he said.

"Consequently, we expect the ECB to keep interest rates at 4.25 percent through the rest of 2008, before cutting them gradually to a low of 3.50 percent in the third quarter of 2009," he added.

Further details - Eurostat

Text and Picture Copyright 2008 AFP. All other Copyright 2008 EUbusiness Ltd. All rights reserved. This material is intended solely for personal use. Any other reproduction, publication or redistribution of this material without the written agreement of the copyright owner is strictly forbidden and any breach of copyright will be considered actionable.