German business confidence declined more than expected this month amid jitters over Europe's debt crisis, but the overall picture remains positive, a closely watched survey showed Friday.
The Ifo Institute's confidence index dropped to 112.9 points for July, from 114.5 in June. While the index remains in sight of the multiyear highs it reached in recent months, economists had expected a slip of less than a point.
Ifo said companies' assessment of both their current situation and the outlook for the next six months declined.
Manufacturers expect slower export growth, and the climate also darkened in the retail sector, Ifo said. But "even though the business expectations are weakening, the German economy is still enjoying pleasant summer days," it added.
Germany, Europe's biggest economy, is on course for a second consecutive year of strong economic growth as a lasting export boom is accompanied by signs of increasing domestic demand.
Its economy hasn't yet been affected by the debt woes afflicting several other eurozone countries.
Still, ING economist Carsten Brzeski said the latest reading suggests that the continent's sovereign debt crisis is finally worrying German businesses.
"Strong economic fundamentals and some positive side-effects from the sovereign debt crisis _ lower interest rates and weaker currency _ have shielded the German economy from the global soft patch and market turmoil for a long while," he said.
"This shield is getting thinner," he added.
UniCredit economist Alexander Koch said the drop in business confidence has "added to the risk of a harder landing."
However, he predicted instead "a stabilization toward the end of this year, with definitely much lower but still respectable GDP growth."
Well-filled order books and companies' comparative confidence about the current situation point to a solid short-term outlook, Koch argued.
Ifo's index is based on monthly responses from some 7,000 companies.