Germany’s factory industry suffered a slump in orders in May. The decline in the mainstay economy of Europe could trigger a new recession.

The German government announced that orders dropped 0.5 per cent in May. Domestic orders saw a 0.6 per cent drop while foreign orders decreased by 0.3 per cent.

Orders had dropped in the intermediate goods used in the production of finished products and the auto industry – two key sectors of the German economy.

The intermediate goods sector saw orders dropping by 2.4 per cent in May.

The German auto industry is seeing an end to car-scrapping premiums worldwide that have boosted sales.

Earlier this year, analysts had predicted a gain of 0.5 per cent in May following an upwardly revised 3.2 per cent in April.

Despite the slump in the industry, industrial confidence and hiring intentions are increasing. Month-to-month orders in May have increased by 25 per cent as compared to the previous year. Additionally, factory orders grew 5.6 per cent in April-May as compared with February-March.

Senior economist Carsten Brzeski said that the decline in figures is a pure technical correction and forecast that any recession in the near future will be mild.

Tough spending cuts in Europe led to a slow growth of 0.2 per cent in the first quarter of 2010 in the Eurozone economy.