Sentiment among investors on the future of the Germany economy fell 16.7 points in the past month and now sits at minus 17.2 points, the survey said, AFP reported.
Investor morale is now at its lowest point since December 2022, in the aftermath of the Russia-Ukraine war as surging energy costs exacted a heavy toll on German manufacturers.
It is even lower than April last year, when US President Donald Trump unveiled sweeping global tariffs.
"Expectations are turning negative," ZEW head Ached Wambach said, adding that concerns about energy supplies due to the war on Iran were "holding back investment and undermining the impact of government stimulus measures".
A splurge in public spending by Chancellor Friedrich Merz's government was expected to kickstart a turnaround for the manufacturing powerhouse this year after several years in the doldrums.
But the surge in oil and gas prices triggered by the US-Israeli attacks on Iran and near total closure of the Strait of Hormuz have led economists to slash forecasts for this year.
The ZEW survey showed that, while expectations around the car industry were largely flat, there were plunges of 11 and 21 points for the energy-intensive chemical and metals industries.
The ZEW institute surveyed 192 analysts and institutional investors for its latest survey.
Speaking to reporters in Frankfurt earlier this month, Anne-Marie Grossmann, head of steelmaker Georgsmarienhuette, said the hostilities were "having a massive effect on our costs" and warned that repeated energy price spikes meant that industry could not plan and invest for the future.
"Imagine you have to make a financial model and you cannot put in your operating expenses because you simply do not know what they are," she said. "We need to get back to the cost level there was before Ukraine".