German industrial orders plummeted nearly twice as much as expected in April. New business fell by 3.8 percent compared to the previous month, the Federal Statistical Office reported on Monday. The decline was driven by weaker demand from Eurozone countries and in key sectors such as automotive and mechanical engineering. Economists polled by Reuters had forecast a drop of only 2.0 percent, following a revised increase of 4.5 percent (previously 5.0 percent) in March.

'The Middle East war is taking its toll,' said Commerzbank Chief Economist Jörg Krämer. While the slump is primarily a correction following the sharp rise in March - when many companies front-loaded orders during the first month of the conflict due to fears of supply disruptions - the decline in sentiment indicators like the Ifo Business Climate Index suggests no immediate recovery. 'Instead, the German economy is likely to shrink slightly in the second quarter,' Krämer added.

The negative trend is attributable to significant declines in the automotive industry (-5.3 percent) and among manufacturers of electrical equipment (-16.3 percent). Mechanical engineering firms also suffered from falling demand (-7.4 percent). Excluding large-scale orders, bookings also contracted by 3.8 percent in April.

Foreign orders fell by 4.2 percent. Within this category, orders from the Eurozone collapsed by 11.1 percent, while those from the rest of the world edged up by 0.8 percent. Domestic orders decreased by 2.9 percent.

The war involving Iran, which broke out on February 28, is causing widespread uncertainty, has driven up energy prices, and is resulting in supply bottlenecks. In May, 15.9 percent of companies reported shortages of intermediate products, according to an Ifo Institute survey, up from 13.8 percent in April. 'Supply chains remain strained,' said Ifo expert Klaus Wohlrabe. 'Sectors with high requirements for oil- and energy-intensive intermediate products are particularly feeling the impact of geopolitical tensions.'

(Reporting by Rene Wagner, editing by Christian Götz. For inquiries, please contact our editorial office at berlin.newsroom@thomsonreuters.com)