By Liam Moloney

ROME--Italian industrial orders dropped in May, as both foreign and domestic demand slipped, underscoring the fragility of the economic recovery in the euro zone's third-largest economy.

Industrial orders declined 1.1% from April, reversing much of their 3.6% increase in the previous month, national statistics institute Istat said Monday, using seasonally adjusted data. Orders are down 2.5% on the year in unadjusted terms, Istat added.

The monthly drop was led by a 4.5% reduction in foreign orders while domestic demand slipped 0.2%.

Orders are a proxy for future industrial output, a key metric for Italy, which has Europe's second-largest manufacturing sector.

Industrial sales declined 1.0% in May from April in seasonally adjusted terms, with a 0.6% drop in the domestic market, Istat said. Industrial sales are up 0.1% from May 2013 in workday-adjusted terms, led by a resurgence in automobile production and sales, according to Istat.

Monthly orders and sales are volatile, but the latest figures highlight the risk of a downturn.

Earlier this month, Istat said that Italy's industrial production unexpectedly fell in May, in what was the biggest decline since November 2012, as output of all products except energy slipped.

Italy's economy has to expand at around 2.0% in real terms for the unemployment to begin to decline to pre-crisis levels, economists say. The reformist government of Prime Minister Matteo Renzi has among its top priorities to slash away at record-high unemployment.

Write to Liam Moloney at liam.moloney@wsj.com

(END) Dow Jones Newswires

July 21, 2014 04:41 ET (08:41 GMT)

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