BERLIN (Reuters) -German business morale worsened for the second consecutive month in June, a survey showed on Monday, indicating that Europe's largest economy faces an uphill battle to shake off recession.

The Ifo institute said its business climate index stood at 88.5 following a reading of 91.5 in May. A Reuters poll of analysts had predicted a smaller fall to 90.7 in June.

"Sentiment in the German economy has clouded over noticeably," Ifo's president Clemens Fuest said.

Expectations were significantly more pessimistic, falling to 83.6 in June from 88.3 in May. Companies also assessed their current situation more poorly, with the sentiment evaluating current conditions falling to 93.7 from 94.8.

"Above all, the weakness in the manufacturing sector is steering the German economy into turbulent waters," Fuest said.

The decline in Ifo is in line with the drop in the flash purchasing managers index, published on Friday. There was a combination of a slower rise in service sector business activity and a deepening downturn in manufacturing output, that report showed.

"The slump in the German Ifo, together with the drop in the PMIs, suggests that German GDP probably contracted for the third quarter in a row in the second quarter," said Franziska Palmas, senior Europe economist at Capital Economics. The economic research firm expects the economy to remain in recession throughout 2023.

"We feel that our forecast that the German economy will contract again in the second half of the year has just been confirmed," Commerzbank's chief economist Joerg Kraemer said.

(Reporting by Maria Martinez, Editing by Friederike Heine, Matthias Williams and Hugh Lawson)