* Orders fall 1.4 pct in August vs forecast 0.3 pct gain
* Fall in domestic demand drives overall drop
* Consumers, firms nervous in view of debt crisis
(Adds details, quotes, background)
By Sarah Marsh
BERLIN, Oct 6 German industrial orders slid
unexpectedly in August on a drop in domestic demand, adding to
signs Europe's largest economy can no longer be relied on as a
growth engine for its struggling neighbours.
A 3.2 percent drop in domestic orders drove a 1.4 percent
overall month-on-month drop, the Economy Ministry said on
Thursday, noting this was partly a result of the summer break.
Economists in a Reuters poll had forecast a 0.3 percent rise.
"The outlook is becoming ever more unclear, like a fog.
Given the enormous uncertainty on the markets and the debt
crisis, so no one is ordering," said Dekabank analyst Andreas
The weak reading could strengthen the case for the European
Central Bank to cut rates in the near future, although it is
widely expected to keep rates unchanged on Thursday.
The ministry revised July's figure up slightly to a 2.6
percent drop, from an originally reported 2.8 percent fall.
Germany has been one of the industrialised world's star
performers since the end of the financial crisis, and its swift
recovery has helped stimulate its trade partners.
Data provided by automotive industry group VDA this week
suggested half of new German sales were imports.
Recent figures, however, show clouds gathering on the
horizon in light of the twin debt crises in the U.S. and Europe.
Earlier on Thursday, the DIW economic research institute cut
its forecasts for 2011 and 2012 German growth to 2.8 and 1
percent, noting consumers and firms were increasingly nervous in
view of the euro zone debt crisis.
German retail sales fell at their fastest pace in more than
four years in August, data showed last week, while business
sentiment fell for the third month in a row in September.
Analysts have long feared exports would be the main victim
in Germany of the debt crisis, hoping that domestic demand could
sustain its recovery.
Yet the economy ministry noted on Thursday that foreign
demand, especially from the euro zone, remains intact -- orders
from the currency bloc rising 2.7 percent -- while domestic
demand is weakening.
Domestic orders for consumer and capital goods fell 4.0 and
3.8 percent respectively.
"If there is not a credible solution soon to the debt
crisis, consumers will hold back on purchases and companies will
put their investments on ice," the DIW institute said.
(Additional reporting by Madeline Chambers; editing by Anna
Willard, John Stonestreet)