Confidence in the German business world fell further than expected in November, compounding the economic outlook in a country poised to be the most sluggish performer in the Group of Seven (G7) this year.

According to Munich's Ifo Institute for Economic Research, Germany's rating on its business climate index slumped from 86.5 in October to 85.7 in November, 0.3 points more than analysts had predicted.

What is the Ifo business climate index?

The Ifo index is calculated based on a survey of around 9,000 companies in Europe's largest economy.

Its business confidence rating dropped from 85.7 to 84.3 in the same period, leading Ifo president Clemens Fuest to conclude: "The German economy is lacking strength."

Business expectations, however, only decreased marginally from 87.3 to 87.2, which Robin Winkler, chief economist for Germany at Deutsche Bank Research, finds remarkably stable given the collapse of Germany's coalition government earlier this month and the impending return of US President-elect Donald Trump.

Germany: Trump return could be 'negative' for trade

"Either German companies are not yet overly concerned about US trade policy or these concerns are being offset by the prospect of new elections in Germany," Winkler said.

The decline affected all sectors of the economy with the exception, intriguingly, of trade. According to Ifo, a more on-the-pulse assessment of the current situation may lead retailers and wholesalers to be less pessimistic.

However, as Carsten Brzeski, global head of macro at ING, points out, the impact on Germany of Trump's return to the White House, tax cuts and deregulation in the United States and a potential trade war with the European Union is likely to be "a negative one."

Philipp Scheuermeyer, economist at public lender KfW, concurred, saying it was "no wonder" that the Ifo index had fallen. "Donald Trump's election victory is likely to create new headwinds for the already hard-hit German export industry," he said.

Franziska Palmas, senior Europe economist at Capital Economics, concluded: "The [Ifo] readings confirm that the German economy remains in the doldrums."

mf/msh (Reuters, AFP)