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German business climate getting chillier

August 27, 2012: 11:48 AM ET

As the eurozone economy continues to falter, German business owners are growing increasingly pessimistic about the future.

The Munich-based Ifo Institute said Monday that its Business Climate Index fell in August for a fourth consecutive month.

The gloomy mood among German firms comes as economic activity across the 17-nation euro area has slowed. In the second quarter, eurozone gross domestic product declined 0.2% from the prior quarter, according to initial estimates.

While the German economy grew in the second quarter, analysts say the weakness in the eurozone will take a toll on Germany's exporters.

Related: Everything you need to know about where things stand in Europe

Germany is the largest economy in the eurozone and exports are its main driver. But demand for German goods has faded as the long-running debt crisis weighs on economic activity across the region.

For the first time in nearly three years, German firms have a "slightly negative" outlook for exports, according to Ifo Institute president Hans-Werner Sinn.

"This is a gentle reminder that the German economy is not immune to a major downturn in its partners' economic background," said Michel Martinez, an economist at Societe Generale, in a note to clients.

Related: Europe's unstable hammock

Despite the overall decline in business sentiment, the index of current conditions in Germany declined only modestly. This should help temper fears of a sharp downturn in German economic activity during the third quarter, said Martinez.

However, the longer-term outlook is bleak. The expectations index fell to its lowest level since June 2009 and is now below its long-term average.

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