(Adds economists' comments)
By Jan Strupczewski
BRUSSELS, May 13 (Reuters) - Euro zone industrial output plummeted by more than a fifth year-on-year in March, data showed on Wednesday, setting a new record and pointing to a sharp contraction in first-quarter economic growth.
Industrial production in the 16 countries using the euro fell 2.0 percent month-on-month and 20.2 percent year-on-year. Economists polled by Reuters had expected a 1.0 percent monthly decline and an 18.0 percent year-on-year drop. [ID:nBRQ007335]
"This sure is a horrible number," said Kenneth Broux, economist at Lloyds TSB Corporate Markets.
The data offered no cause for optimism about "green shoots" of economic recovery, seen in some forward looking business surveys, economists said.
"There are no green shoots here, everything is either a quarter or a fifth down on the year," Stuart Bennett, European economist at Calyon.
"An optimist would point to the fact that the data is 'old' referring to March and therefore may not have picked up on the comparative rise in sentiment during April and May. So perhaps Q2 GDP will prove better than Q1 but the outlook remains very weak," he said.
Eurostat also revised down production data for February to a monthly fall of 2.5 percent from the initially reported decline of 2.3 percent and, in year-on-year terms, to a plunge of 19.1 percent from 18.4 percent.
"Together with downward revisions to the previous monthly outcomes, this left output down by an astonishing 7.9 percent in the first quarter, compared to a 6.5 percent fall in the fourth quarter," said Nick Kounis, economist at Fortis.
"The outcome is consistent with GDP contracting by just above 2 percent quarter on quarter in Q1, following the 1.6 percent fall seen in the previous quarter," he said.
VERY BAD Q1, Q2 BETTER?
The first estimate of first-quarter euro zone gross domestic product is due on Friday and the European Commission expects a 2.1 percent quarterly contraction.
Industry accounts for around 17 percent of euro zone GDP.
The production drop was the result of a 27 percent annual fall in the output of intermediate goods and drops of more than 23 percent in the output of capital and durable consumer goods.
On a monthly basis, intermediate goods output fell 3.1 percent, durable consumer goods declined 2.5 percent and energy output dropped 2.8 percent.
"Fortunately, more recent evidence indicates that the second quarter will be considerably less negative and we continue to expect the economy to stabilise in the second half of the year," Kounis said.
The Commission sees second quarter GDP contracting only 0.7 percent quarter-on-quarter and 0.3 percent in the third.
Economists also said that, sooner or later, manufacturers were bound to benefit from a move to replenish inventories, which must have fallen in recent months as production shrank.
But the timing for that was unclear. The latest European Commission survey for April showed companies still saw their stocks as too high.
"With firms likely to continue to run down their stocks, the industrial sector looks set to act as a drag on the economy for some time yet," said Ben May, economist at Capital Economics. (Reporting by Jan Strupczewski, editing by Mike Peacock)