The index of German business confidence fell to 96.4 in February from 97.5 in January, the Ifo institute said.
"The rise in the Ifo business climate index of manufacturing, construction, retail and wholesaling in Germany observed in the past nine months has not continued in February, said Ifo president Mr Hans-Werner Sinn.
Mr Sinn said the worsening was primarily due to the expectations for the next six months, which are no longer quite so favourable.
The February business assessment index was at 92.6, slightly up from 92.5 in January, Ifo said. The February business expectations index fell to 100.4 from 102.9 in January, the institute said.
This is the first time the Ifo institute has published its index for Germany as a whole. In the past, it gave separate readings for east and west Germany.
Mr Sinn said the slight decline in the business climate, with a still unsatisfactory business situation, is a small warning signal over the economic recovery.
"It is now more important than ever to give investors confidence in the continuation of the reforms and to keep the exchange rate under control," Mr Sinn added.