The ZEW institute said its confidence index, which measures investors' economic outlook for the next six months, was down 7.5 points for July to 21.2 — the lowest level since April 2009, when it stood at 13 points.
The decline was less sharp than the 17-point tumble the index suffered in June but left it below the historical average of 27.4 points. It was worse than economists' expectations of a shallower fall to 25.3.
The German economy, Europe's biggest, has settled into modest growth over the past year as an improving global economy has boosted its exports — its traditional strength.
A subindex of the ZEW survey measuring investors' view of the current economic situation rose by a strong 22.5 points in July, taking it to 14.6 points, the highest level since July 2008.
However, the eurozone's debt crisis, and resulting government austerity drives in several countries including Germany, have raised concerns about future growth.
“The considerable improvement in the economic situation together with the decline in expectations signals that — until the end of this year — the potential for further improvements of the German economy seems to be widely used up,” ZEW said in a statement.
“Particularly the crisis in sovereign debt and the resulting need for consolidation of budgets in various countries seem to have contributed to the subdued economic expectations,” it added.
While the ZEW survey — an often-volatile yardstick — has fallen recently, business confidence so far appears stable.
In June, the Ifo institute's business confidence survey unexpectedly rose slightly.
Experience shows that the ZEW survey's current reading of 21.2 “is not in line with a double dip (recession) scenario,” said Andreas Rees, an economist at UniCredit in Munich.
That “could only become a possibility if the ZEW growth expectations fell deeply into negative territory,” he added — although he cautioned that “it is too early to give the all-clear on this issue” as other indicators also have peaked.
He said he was sticking to a long-held forecast of 1.5 percent economic growth next year but sees “substantial downside risks.” The Center for European Economic Research, or ZEW, said 287 analysts participated in its July survey, which was conducted between June 28 and July 12.
