(Adds economist comments, details)
By Jan Strupczewski
BRUSSELS, March 20 (Reuters) - Euro zone industrial output staged a new record plunge in January, pointing to a further sharp contraction in the economy this year and boosting pressure for further deep ECB rate cuts and quantitative easing.
Production in the 16 countries using the euro fell 3.5 percent against December, the fifth straight month of decline, for a 17.3 percent annual drop -- the deepest since records began in 1990, the European Union's statistics office said.
"The euro zone industrial production data for January are breathtakingly awful, adding to the evidence that manufacturing activity has fallen off a mountain rather than a mere cliff," said Howard Archer, economist at IHS Global Insight.
Economists polled by Reuters had expected on average a 4.0 percent monthly decline in output and a 15.5 percent year-on-year fall.
"On a three-month annualised basis, the contraction in industrial output is even more shocking: at around 30 percent as of January, it is 20 percentage points worse than at the trough of the last two downturns," said Ken Wattret, economist at BNP Paribas.
"This points to spectacularly large contractions for 2009 as a whole: around -4 percent for GDP and -15 percent for industrial production are plausible outcomes," he said.
Eurostat said capital and intermediate goods production suffered the most, falling 6.0 percent and 3.6 percent on the month respectively for 21.4 and 24.4 percent year-on-year declines.
"Plunging industrial production in January heightens fears that euro zone GDP will contract in the first quarter of 2009 by even more than the 1.5 percent quarter-on-quarter drop seen in the fourth quarter of 2008," Archer said.
"Consequently, there is intense pressure on the ECB to cut interest rates further at its April 2 policy meeting, and we expect the bank to deliver another 50 basis points reduction from 1.50 percent to 1.00 percent," he said.
Economists said, however, the scale of the slowdown may mean the European Central Bank would be forced to do more than just cut interest rates.
"The downside risks to the ECB's revised growth forecasts appear to be already materialising and this adds to the case for further significant policy easing," said Nick Kounis, economist at Fortis Bank.
"With the deposit rate not too far from zero it has already almost exhausted its room for manoeuvre on interest rates. So the pressure is on for the central bank to enhance its unconventional measures," he said. (Editing by Dale Hudson)