Firms are producing less as demand has slowed

Factory production in the eurozone shrank more slowly in May than expected, a key survey suggests.

The Markit Eurozone Manufacturing Purchasing Managers Index had a better-than-expected reading of 40.7, marking its highest level in seven months.

The rise from April's reading of 36.8 was the largest monthly increase in the survey's 12-year history.

While the index suggested firms would pick up production, it also indicated that unemployment would rise further.

Analysts warn that it could be some time before manufacturers report a growth in production, with the index still below the 50 level, which separates contraction from growth.

"The message we get is that the pace of contraction is shrinking and the worst is probably behind us, but it still does not suggest the recession is over yet and it's not likely to end any time soon," said Juergen Michels, an economist at Citigroup.

Analysts had forecast a reading of 40.5 in May.

Many economist believe unemployment, which is currently at 8.9% for the region, will exceed 10% next year.