The country's business sentiment has dropped noticeably as expectations in the manufacturing sector dropped and the climate in retailing clouded over, the Ifo economic research institute said on July 22.
The monthly Ifo business climate index dropped to 112.9 points from 114.5 points in June, ending two months of increases and falling below expectations of a decline to 113.8 points, according to a poll of economists by Dow Jones Newswires.
It was the Ifo's lowest level since October 2010, when the reading stood at 112.0 points.
"Expectations are clearly weakening" in the key manufacturing sector of Europe's biggest economy," said Ifo president Hans-Werner Sinn.
A slowdown in Chinese, eurozone and U.S. economic activity in particular has begun to curb demand for German investment and intermediate goods used to make final products.
Meanwhile, "the business climate in retailing and in wholesaling has clouded over" as well, Sinn added.
The closely-watched index is based on a survey of around 7,000 firms in manufacturing, construction, wholesaling and retail. It measures their assessment of the current situation and expectations for the next six months.
The expectations index, it dropped to 105.0 points from 106.2 points, whereas analysts had expected it to come in at 105.3 points.
Earlier in the week, the ZEW index of investor confidence fell for the second month running on worries about the eurozone debt crisis, U.S. growth, and the U.S. debt ceiling stalemate.
Copyright Agence France-Presse, 2011