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Frankfurt - German business confidence fell unexpectedly in March, data showed Friday, as weak economic data, political gridlock in Italy and the Cyprus crisis begin to sour business confidence in Europe's top economy.
The Ifo economic institute's closely watched business climate index slipped to 106.7 points in March from 107.4 points in February. Analysts had been expecting a modest increase this month to 107.6 points.
"After rising sharply last month, the Ifo business climate index edged downwards in March," said Ifo president Hans-Werner Sinn.
"Companies were slightly less positive about their future business outlook than in February, but assessed their current business situation almost as positively as last month."
But he insisted: "The German economy remains on track in a challenging environment thanks to strong domestic demand."
Ifo calculates its headline index on the basis of companies' assessments of their current business and the outlook for the next six months.
The sub-index measuring current business slipped fractionally to 109.9 points in March from 110.2 points in February. And the outlook sub-index fell by one full point to 103.6 points.
Cyprus's Parliament overwhelmingly rejected a proposed tax on bank deposits as a condition for aid, pushing the Mediterranean island a step closer to the brink of financial meltdown.
The Cypriot Parliament is expected to discuss a new banking bill on Friday. This follows reports that the European Central Bank would withdraw its emergency liquidity assistance programme by next Monday if an agreement has not been agreed.
