FRANKFURT, Germany, July 4, 2025 (BSS/AFP) - German industrial orders fell faster than expected in May, official data showed Friday, a bad sign for Europe's biggest economy even as it faces the threat of higher US tariffs.

New orders, closely watched as an indicator of future business activity, slid 1.4 percent month-on-month, according to preliminary data from federal statistics agency Destatis.

It was a larger drop than analysts had been expecting and followed an increase of 1.6 percent in April.

The fall was driven by a hefty drop in orders in the computer, electronic and optical product industries, Destatis said.

Foreign orders rose by around three percent but domestic orders fell by nearly eight percent, it said.

Jens-Oliver Niklasch, an economist from LBBW bank, however said the data were a "slight disappointment, but one that should not be overstated.

"The latest figures from industry were quite encouraging, so that the odd setback here and there is nothing to worry about."

The German economy shrank for the past two years but there have been signs that a modest recovery could get underway this year, with economic institutes recently predicting a return to slight growth in 2025.

But Niklasch also warned: "The sword of Damocles in the form of US tariff policy continues to hang over everything."

President Donald Trump's July 9 deadline for US trading partners to avoid heftier tariffs is fast approaching, and the European Union could be hit hard if it fails to strike a deal.

Germany stands to be particularly affected as the United States is a key market for its exports, from cars to chemicals and pharmaceuticals.