July 4 (Bloomberg) -- German manufacturing orders unexpectedly declined for a sixth straight month in May, further evidence that Europe's largest economy is losing momentum.

Orders, adjusted for seasonal swings and inflation, fell 0.9 percent from April, the Economy Ministry in Berlin said today. Economists expected a gain of 0.8 percent, according to the median of 37 forecasts in a Bloomberg News survey. Orders fell 2 percent from a year earlier.

German and European manufacturing growth is faltering as near-record oil prices push up inflation and damp the spending power of companies and consumers just as a stronger euro weighs on exports. The European Central Bank raised interest rates yesterday to a seven-year high to combat the threat of an inflation spiral.

``The boom is well and truly over,'' said Matthias Rubisch, an economist at Commerzbank AG in Frankfurt. ``Now we'll have to pray the economy doesn't go in the other direction.''

The last time orders fell for five consecutive months or more was in 1992. The German economy shrank the following year.

May is the fourth month in a row that orders defied economists' expectations of an increase. In April, sales fell 1.7 percent, the ministry said, revising its previous forecast of a 1.8 percent drop.

European Gains

Domestic orders dropped 2.7 percent in May while foreign sales gained 0.8 percent. Orders from other euro-area countries increased 3.4 percent and demand from the rest of the world fell 1.2 percent in the month.

The euro has gained 15 percent against the dollar and 17 percent against sterling over the past year and the price of oil has more than doubled in that time to more than $145 a barrel.

Volkswagen AG, Europe's largest automaker, said June 20 sales of VW-brand cars declined in May as higher fuel prices discouraged buyers. Heidelberger Druckmaschinen AG, the world's largest printing-press maker, has forecast a ``significant'' drop in annual profit, citing slowing demand and the stronger euro.

Order growth over the past six months has ``cooled significantly,'' the ministry said in the statement. ``Overall it points to weaker developments in industrial production.''

``The cost shock from oil and other commodities is really biting,'' said Laurent Bilke, an economist at Lehman Brothers International in London. ``It will also affect orders from markets, like emerging economies, that have so far remained fairly resilient. The outlook is deteriorating further.''

Inflation High

Inflation in the 15-nation euro area accelerated to a 16- year high of 4 percent last month. In Germany, which accounts for about a third of the region's economy, annual price gains reached 3.4 percent, the fastest since records began. The ECB aims to keep inflation just below 2 percent.

ECB Governing Council member Juergen Stark said June 26 that higher oil prices will leave a ``significant'' mark on the euro- area economy. Last month, manufacturing in the 15 nations in the region contracted, a survey of purchasing managers showed July 1. Industrial production in Spain fell the most in six years in May, a report today showed.

``I don't think that yesterday's increase in interest rates will hurt the economy,'' ECB council member Klaus Liebscher said today. Policy makers in Frankfurt yesterday raised the benchmark lending rate by 25 basis points to 4.25 percent.

Losing Momentum

Today's report is the latest to signal that Germany's economy, which so far has coped, is losing its momentum.

German consumer, business and investor confidence fell last month. Plant and machinery orders dropped the most in three years in May, the VDMA machine makers association said this week.

Europe's largest economy may shrink in the second quarter after having expanded at the fastest pace in 12 years in the first three months of the year, Germany's Deputy Economy Minister Walther Otremba said June 24.

Not all German companies are suffering, though. Siemens AG, Europe's largest engineering company, said July 1 that it has a ``record'' order backlog at its energy division. Other companies pass on higher costs. BASF SE, the world's biggest chemical maker, last month said it will increase prices by as much as 20 percent because of higher raw-material, energy and freight costs.

Still, the price of oil is likely to continue its ascent next year and economic growth to be cut in half, Germany's IMK economic research institute said June 26. IMK forecasts Germany's economy will grow 0.9 percent in 2009 after expanding 1.8 percent this year. Economic growth peaked in 2006 at 2.9 percent.

``The German economy is at the end of its upswing,'' IMK said.

To contact the reporter on this story: Gabi Thesing in Frankfurt at gthesing@bloomberg.net

Last Updated: July 4, 2008 07:45 EDT