Germany's closely watched business climate index dropped from 103.2 points in July to 102.3 points in August – its lowest level in almost two-and-a-half years, the Ifo economic institute said Monday.

"The German economy is continuing to falter," said Ifo president Hans-Werner Sinn, citing a general cooling in the global economy as well as the eurozone debt crisis as reasons for the decline.

Ifo has gauged opinions from about 7,000 German business leaders, sampling data on both current business perceptions and expectations for the coming six months.

While current business was seen "deteriorating only slightly," managers expressed greater pessimism regarding future business developments, as the barometer on this score fell by 1.3 points to 94.2 points in August.

Hans-Werner Sinn noted that exports were expected to "contract for the first time in three years," adding to the already existing gloom in the building, services and retail sectors.

However, confidence in the manufacturing industry was improving slightly after three months of decline, he added.

In recent months, German exports as well as industrial output and new orders have decreased at a pace that forced the German central bank to predict a stagnating German economy for the second half of 2012.

uhe/tj (Reuters, dpa, AFP)