The mood among German business leaders has deteriorated for the second month in a row, according to the Ifo economic institute's June survey. Entrepreneurs are getting increasingly worried about the eurozone debt crisis.
Business confidence in Germany hit a two-year low this month, the Munich-based Ifo reported on Friday.
Ifo's closely watched business climate index fell to 105.3 points this month, down from 106.9 in May. Analysts had penciled in a smaller decline, but companies grew much gloomier about the fallout of the eurozone debt crisis.
Although initial fears of Greece's immediate exit from the eurozone are no longer evident, business leaders in Germany have become extremely nervous about the fiscal woes of Spain and Italy.
"The recent surge in uncertainty in the eurozone is impacting the German economy," Ifo President Hans-Werner Sinn said in a statement.
Ifo calculates its headline index on the basis of companies' assessments of their current business and the outlook for the next six months. While the subindex gauging current activities edged up by 0.7 points in June, the subindex measuring outlook tumbled to 97.3 points, its lowest level since October.
Early trading losses on Germany's blue-chip DAX increased following the news from the Ifo institute, dropping by 1.3 percent shortly after the survey was made public.