The ZEW institute reported Tuesday that its monthly confidence index dropped by 27.7 points to a level of minus 16.9 points — its strongest decline since October 1998.
ZEW president Wolfgang Franz says the financial market experts who were surveyed are clearly warning against an over-optimistic assessment of Germany's economic prospects this year. Germany's export-oriented economy ships a lot of its goods to countries where the crisis is weighing on the economy.
"The risks of a pronounced decline in economic activity in countries with close trade ties to Germany are very clear," Franz said.
The experts' assessment of the current economic situation for Germany dropped by 10.9 points to 33.2 points.
Germany's economy grew by 0.5 per cent in the first quarter and the country's government finances are in good shape compared to other members of the 17-country single-currency union. Countries such as Greece, Spain and Italy are seeing their economies shrink and unemployment rise as they try to cut their budget deficits by reducing spending and raising taxes. That removes the stimulus of government spending from the economy.