Weak demand from abroad caused German industrial orders to fell sharply in May, as the COVID-19 outbreak continues to pummel Europe's top economy, official data showed Tuesday.

Orders were down by 3.7%, according to the federal statistics office Destatis, dashing the hopes of analysts polled by Factset who had penciled in a rise of 0.8% compared to April.

However, a year-on-year comparison showed a whopping 54.3% increase compared to May 2020, when the economy came to a screeching halt during the first wave of the global pandemic.

International orders in May sank particularly sharply, by 2.3% from eurozone countries and 9.3% from the rest of the world according to month-on-month data.

Industrial orders are closely watched as a key indicator of future economic activity, especially in manufacturing powerhouse Germany.

Germany's economy shrank in the first quarter as restrictions were imposed to counter a winter surge in COVID-19 cases.

However, ING analyst Carsten Brzeski suggested the disappointing May industrial orders data should be taken with a "pinch of salt."

He noted that "ongoing supply chain disruptions, delivery delays and lack of materials and intermediate goods" due to the pandemic have "blurred the traditional link between industrial orders and production."

"Consequently, the industrial rebound could be a bit more erratic than previously anticipated," he said.

"Order books are more than richly filled and reducing backlogs is a bigger problem for German companies than acquiring new orders."

Last week German business confidence rose to a near three-year high in June, buoyed by reopenings and falling coronavirus infection rates, according to the Munich-based Ifo institute's monthly confidence barometer.