The monthly Ifo business climate index plunged to 108. 7 points through 112. 9 points in July, highlighting a sharp slowdown seen also within other recent data.
The result was well below expectations of a decrease to 111 points, according to a poll of economists by Dow Jones Newswires, and was the largest drop since the index lost 4. 7 points in July 2008.
It had been also the lowest level since June 2010, when it stood at 106. 5 factors.
"Companies have scaled back their expectations of business developments in the arriving half year, " an Ifo statement quoted president Hans-Werner Sinn as stating.
"The current business situation, however, continues to be assessed overall as great, although the situation appraisals in recent months were significantly more favourable, inch he added.
A sub-index that measures companies assessment of their current scenario fell to 118. 1 points from 121. 4 points in July, while expectations for that six months to come dropped to 100. 1 points from 105. 0 factors.
That was the latter reading's lowest level since October 2009.
The survey showed falls in most of its categories - manufacturing, retailing and construction.
"The German economy isn't immune to current worldwide turbulence, " Sinn said.