Business confidence in Germany fell more-than-expected this month, hitting a two-year low amid worries about higher energy prices and the prospect of a possible shortage of natural gas, AP reported.

The Ifo Institute said its monthly confidence index fell to 88.6 in July from 92.2 last month. This is the second consecutive drop and the index has reached its lowest level since June 2020. Economists had forecast a fall to 90.1.

The decline was driven by worsening company guidance for the next six months, but they were also less satisfied with their current position.

Companies expect business to become much more difficult in the coming months, Ifo said in a statement. 

Natural gas deliveries via the Nord Stream 1 gas pipeline from Russia to Germany resumed on schedule last week after a 10-day maintenance shutdown, but are still at just 40% of full capacity, as they have been since mid- June. Prospects for future supplies from Russia, which has recently accounted for about a third of Germany's gas supplies, are uncertain.

The German government has announced that it will increase its gas storage requirements and take additional measures to conserve gas used for energy, power generation and home heating in the winter.

The Ifo survey is based on responses from approximately 9,000 companies across a variety of business sectors.