The ZEW institute's closely-watched economic expectations index fell to 19.2 points, a steep drop of 22.6 points from a month earlier.
Analysts surveyed by financial data firm FactSet had predicted a smaller decline, to 34.3 points.
The August reading marked "the strongest decline of the economic expectations over the past two years", ZEW president Achim Wambach said in a statement.
"It is likely that economic expectations are still affected by high uncertainty, which is driven by ambiguous monetary policy, disappointing business data from the US economy and growing concerns over an escalation of the conflict in the Middle East," he said.
"Most recently, this uncertainty expressed itself in turmoil on international stock markets," he added.
Germany, traditionally a driver of European growth, was the only major advanced economy to shrink in 2023 as it battled high inflation, an industrial slowdown and cooling export demand.
The government expects the economy to grow slightly in 2024 on the back of easing inflation, but an unexpected contraction of output in the second quarter and a string of weak indicators have recently darkened the outlook.
"The ZEW survey confirms the impression that the German economy is struggling to get back on its feet," said Deutsche Bank economist Robin Winkler.
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