German business morale unexpectedly worsened in December, the Ifo institute said on Monday after its latest survey also showed a decline in both expectations and current conditions.

The Ifo institute said its business climate index stood at 86.4 versus the 87.8 forecasts by analysts in a Reuters poll, following a revised reading of 87.2 in November.

The German economy has a demand problem, Ifo's head of surveys, Klaus Wohlrabe, told Reuters. (Reporting by Maria Martinez, Writing by Miranda Murray, Editing by Rachel More)