Factories in the euro zone saw demand pull back more sharply than expected in May, official EU data shows today.

New industrial orders in the euro zone slumped 3.5% in May from April and plunged 4.4% compared with the same month in 2007, the European Union's Eurostat data agency said.

The result fell far short of economists' forecasts for orders to fall 2% over one month and increase 1.7% from May 2007. The figures also marked a sharp deterioration from April when new orders rose 2% over one month and surged 12.3% over one year, according to revised figures from Eurostat.

The weakness in May was driven by a sharp drop in orders for transport equipment, which often vary widely from month to month. However, orders for textiles and machinery were also soft.

Meanwhile, in the 27-nation EU new industrial orders fell 4.7% over one month in May and 2.8% over one year.

Analysts said that as old orders are worked off and new orders are no longer increasing, industrial output looks set to stagnate soon.

Meanwhile, other figures from Eurostat today show that the European Union's current account showed a deficit of €26.5 billion in the first three months of 2008.

Previously Eurostat had estimated that the deficit stood at €23.7 billion in the first quarter.

The deficit marked a sharp deterioration from a shortfall of €7.3 billion recorded in the final three months of 2007 but narrowed from the €30.4 billion chalked up in the first quarter of 2007.

The current account is an important measure of all current payments into and out of a given area, and is an indicator of the long-term capacity of that area to pay its way in the world.