Leading German economists have warned that the country's upswing could stall after an influential business confidence index sank for the third consecutive month in August.
The Ifo index, based on a survey of over 7,000 managers in western Germany, fell from 89.9 per cent in July to 88.8 last month, a level not seen since the start of the year.
"It signals a possible - at least temporary - interruption of the recovery," said Mr Gernot Nerb,chief economist of the Ifo institute in Munich.
"At the very least we see a danger that the upswing in the second half of the year will not pick up speed."
He warned that the already delicate economy could suffer a further setback as a result of the recent floods, as managers become more pessimistic about their medium-term business plans.
The German economy is already struggling to shake off last year's mild recession, with only 0.3 per cent growth in the second quarter.
Mr Nerb said that the institute's forecast of 0.7 per cent growth this year was "at the high end of the spectrum".
"Despite the new index we still believe it to be possible to achieve," he said.
The German government said yesterday that it had no plans to revise its growth prediction of 0.75 per cent for this year.
"I remain somewhat more optimistic. The economy will grow somewhat stronger in the second half of the year," said Mr Werner Müller, the Economics Minister.
Berlin does not expect any relief from the governors of the European Central Bank (ECB), who are not expected to cut interest rates before the year's end.
The Social Democrat government had hoped for a slightly more optimistic economic situation four weeks before the general election.
But the government's hopes of even a hint of a recovery have remained unfulfilled, with unemployment still over 4 million, or 9 per cent, and falling industrial output.
The opposition seized on the declining business confidence as proof of the government's economic mismanagement of the country.
"The Ifo index shows just how unstable the economic situation in Germany is," said Mr Friedrich Merz, the Christian Democratic Union (CDU) parliamentary spokesman.
Mr Merz, the possible finance minister in a new conservative government, said that if elected he would reinstate the tax cuts postponed by the government last week to pay for flood damage.
