German investor sentiment plunged in August to its lowest level in more than five years to cast a cloud over the recovery in Europe's largest economy.
The ZEW economic research institute said its economic expectations indicator for Germany, based on a survey of 307 analysts and institutional investors, fell to -5.6, the lowest since June 2001, from 15.1 in July.
It was the seventh consecutive drop in the closely-watched indicator.
"The current development of the indicator is signalling a considerable economic downturn within the next six months," ZEW said. "The main reasons for this are that exports, investment spending and consumption might decrease."
A separate gauge of current conditions for Germany rose to 33.6 from 23.3 in July, better than a consensus for 26.5. A gauge of euro zone expectation fell sharply to 1.3 from 18.1.
The ZEW survey was conducted between July 31st and August 21st. The German economy came alive in the second quarter of the year, growing at 0.9 per cent, the strongest rate in over five years. Unemployment has declined steadily over the past year and domestic demand, long the German economy's weak point, has shown signs of picking up.
Anecdotal evidence from German companies has also been mostly positive.
But high oil prices, slower global growth and a robust euro are all seen as risks to the outlook and have weighed on investor sentiment in recent months. Economists are also warning that a planned hike in value-added tax next year could choke off the recovery.