The Ifo economic institute's closely watched business climate index dropped to 102.3 points in August from 103.2 points in April, a slightly steeper decline than expected.

It was the fourth month in a row that the index has fallen and brings business confidence in Germany down to its lowest level since April 2010.

"The German economy is continuing to falter,"said Ifo president Hans-Werner Sinn.

"The current business situation deteriorated only slightly, but companies expressed greater pessimism regarding future business developments."

Ifo calculates its headline index on the basis of companies' assessments of their current business and the outlook for the next six months.

The outlook sub-index tumbled to 94.2 points in August, its lowest level since June 2009, and the sub-index measuring current business slipped to 111.2 points from 111.5 points.