German business confidence declined for a fourth month, reflecting a faltering euro-area economy that European Central Bank President Mario Draghi says might need more stimulus.

The Ifo institute’s business climate index, based on a survey of 7,000 executives, fell to 106.3 in August from 108 in July.

Germany has been the engine of the euro area’s revival since last year and its resilience could be critical now as growth stalls and political tension with Russia threatens trade flows. Draghi signaled last week that he could step in with broad-based asset purchases as the region’s inflation outlook worsens.

“The German economy has been slowly sliding back, even if of course we come from a very strong situation,” said Jens- Oliver Niklasch, a fixed-income strategist at Landesbank Baden- Wuerttemberg in Stuttgart. “There’s a lot of uncertainty in Eastern Europe and we can see that the investment climate for companies is cooling off step by step.”

German gross domestic product fell last quarter for the first time in more than a year. While the 0.2 per cent contraction was largely a consequence of a warm winter that shifted output into the previous three months, the Bundesbank has warned that a previously anticipated rebound in the second half of the year is now in doubt. The outlook has been clouded by escalating international sanctions against Russia because of its support for separatists in Ukraine. Russia has retaliated with bans on some food imports.

German electrical and electronic exports to Russia fell 19.8 per cent in the first half of the year, manufacturers’ association ZVEI said last week. Investor confidence slid this month to the lowest level since 2012 and the ZEW Center for European Economic Research said economic growth will probably be weaker in 2014 than previously predicted. The DAX Index of German stocks has dropped about 7 per cent since closing at a record high in early July.

Bloomberg