The Ifo institute’s closely watched indicator fell to 97.7 points in October from 98.9 points in September, its lowest standing since April, as businesses in Germany were hit by supply chain fears.
“Supply problems are giving businesses headaches,” Ifo president Clemens Fuest said in a statement, describing the bottlenecks as “sand in the wheels of the German economy”.
The upheaval caused by the pandemic has given rise to global shortages in everything from timber to semiconductors and plastics.
Germany’s key automotive sector has been hit hard by a lack of computer chips, a key component in both conventional and electric vehicles, forcing several German carmakers to pause production.
The news comes after German shops aired concerns that popular Christmas gifts could be short supply when the festive season rolls around.
A recent survey of retailers conducted by the Ifo Institute revealed that 100 percent of bicycle shops were facing supply issues, while the vast majority of furniture, electronics and DIY stores were also struggling to replenish stocks.
In particular, the shortage of chips is expected to have a knock-on effect on the availability of laptops and smartphones. Economics experts believe the issues with electronics and cars could continue until at least 2023.
Only in construction did the business climate improve, according to the Ifo survey, while sentiment in manufacturing, services and trade deteriorated.
Growth could be “much weaker” in the coming months, according to Fritzi Koehler-Geib, chief economist at German public lender KfW.
“Material bottlenecks and disruptions in the global transport system have been a burden for longer than originally expected and will probably only ease in the coming year,” Koehler-Geib said.
Earlier this month, German economic institutes, including Ifo, revised down their forecast for growth in 2021 due to global supply chain disruptions to 2.4 percent from their earlier prediction of 3.7 percent made in April.