German factory orders recorded their largest decline since January, dealing a setback to a manufacturing sector that has been seeking a sustained recovery. Factory orders fell 10.6% in August, following a 3.2% increase in July. Economists had previously anticipated a decline of just 1%, according to the median forecast. The drop was mainly driven by a reduction in large-scale orders. Excluding this factor, overall orders slipped only 0.1%. Looking at the less volatile three-month period, overall orders still grew by 1.3%. Nevertheless, the result casts a shadow over a recent string of data showing that Europe's largest economy has withstood the inflationary shock triggered by Middle East conflicts and demonstrated resilience. Optimism about the German economy's resilience prompted the country's leading economic research institutes to more than double their growth forecast for this year to 1.3%. Germany has particularly benefited from strong exports and increased government spending on infrastructure and defense. Robust global demand and the artificial intelligence boom offset the impact of weak investment and consumption in the first half of the year, and subsequent indicators have also shown that economic growth momentum remains intact. One of the main risks facing Germany's economic outlook is the Iran war. If the conflict escalates and drives up energy costs, Germany would be especially vulnerable. Meanwhile, competition remains fierce, and the European Central Bank is expected to raise interest rates further to curb inflationary pressures.