The Munich-based Ifo economic institute said on Monday its business climate index, based on a monthly survey of some 7,000 companies, inched down to 106.6 in April from 106.7 in March.

Ifo said the reading was still well above the survey's long-term average, but it was also the fourth fall in five months and below a Reuters consensus forecast of 107.0.

"The mood in the German economy is good but not euphoric," Ifo economist Klaus Wohlrabe said, citing concerns about weakening exports -- traditionally Germany's main growth driver -- linked to a slowdown in the United States and China.

The overall drop was driven by a deterioration in sentiment in the wholesale and retail sectors, while the climate in manufacturing and construction improved.

Recent data have painted an upbeat picture of the German economy, with industrial output stronger than expected at the beginning of the year and exports bouncing back in February.

This has raised hopes for an accelerated economic upswing. Germany's leading economic institutes predict the quarterly growth rate will double to 0.6 percent in the first quarter compared with the previous one.

SUSTAINABLE MODEL?

ING Bank economist Carsten Brzeski said the reading suggested fears of a sharp global slowdown seemed exaggerated, pointing to domestic resilience in the German economy.

However, with manufacturing still struggling to gain momentum and German companies losing competitiveness, it was unclear if the economy's new consumption-based growth model was sustainable, he added.

"Under the surface of solid hard data, a more worrying picture is emerging," Brzeski said.

"The economy is no longer driven by the old success formula but by new factors: consumption, construction and services."

The German industry federation BDI said the success of the sector is increasingly dependent on external factors such as cheap oil, historically low interest rates and the weak euro. It urged the government to boost investment on infrastructure.

"The federal government has neglected to make Germany watertight in the past years," BDI head Ulrich Grillo told a news conference at the Hannover Messe trade fair.

"At the moment our recovery is driven above all by strong consumption," he said. "If these external factors stop working our economic house of cards could collapse."

With robust private consumption and higher state spending having replaced exports as the main pillar of growth, the government expects an expansion of 1.7 percent in 2016 and 1.5 percent in 2017. The German economy grew by 1.7 percent in 2015.

German first quarter gross domestic product data is due on May 13.

Grillo said the BDI now expected German GDP growth of 1.5 to just under 2 percent for 2016, down from its previous forecast of almost 2 percent, confirming comments he made to a German newspaper last week.

(Additional reporting by Georgina Prodhan in Hanover; editing by Richard Balmforth)

By Michael Nienaber