The monthly business climate index calculated by Munich-based economic research institute Ifo fell to 90.2 points in October from 92.9 points in the previous month.
Although the current business situation was assessed as essentially unchanged, survey participants “are considerably more sceptical regarding the outlook for the coming six months,” a statement quoted Ifo President Hans-Werner Sinn as saying.
“German firms are anticipating declining business activity,” he added.
A sub-index of the Ifo survey that measures the current situation in Germany was stable at 99.9 points, compared with 99.8 in September, but expectations for the next six months dropped to 81.4 points from 86.5 points, the institute said.
In the key manufacturing sector, Ifo found that German businesses expected exports to weaken, while their production capacitites were being used at a markedly lower rate and they were no longer planning to hire more workers.
The construction sector also reported a worsened business climate, while it cooled marginally in the retail sector and much more sharply in wholesaling, Ifo said.
Capital Economics economist Jennifer McKeown said the poor results along with the most recent figures on eurozone money supply would increase the chances of a sharp cut in interest rates by the European Central Bank. “The latest German Ifo and eurozone M3 figures add further weight to our view that the ECB is set to cut interest rates aggressively,” she said.