German business confidence has tumbled to a near two-year low, triggering fresh demands for a cut in eurozone interest rates and highlighting the gloomy economic backdrop to Chancellor Gerhard Schröder's bid for re-election.

The Munich-based Ifo institute said yesterday that its business climate index had dropped for the fourth consecutive month, from 93.3 in April to 92.9 this month - the lowest level since August 2003. Hans-Werner Sinn, Ifo president, warned that an improvement in the economic situation in the next few months "is not to be expected".