Reforming the German economy has found vocal opposition

The organisation said its monthly index fell from 62.7 points in April to 50 points in its May survey of 314 analysts and institutional investors.

It had been expected to fall by a more modest level - but instead hit the lowest figure since November 2005.

However, ZEW's measure of the economy's current performance was more positive.

Its current economic conditions index rose to 8.7 from 2.9 in April, the strongest growth since March 2001.

Euro rate burden

The figures follow last week's news that the German economy had grown 0.4% quarter-on-quarter in the first three months of 2006 - below market expectations of 0.6%.

The rise in the euro against the US dollar and the "skyrocketing" oil price were likely culprits, said ZEW president Wolfgang Franz.

"Furthermore the premature trust placed in the German government seems to be diminishing," he added. "The disillusion that set in within the last months seems to have continued."

Despite the apparent gloom surrounding the ZEW report, other data has suggested that optimism remains strong in some quarters for the health of the Germany economy.

Last month, a separate survey of business confidence by the Ifo institute produced the biggest rise in 15 years, having already shown sharp gains in the four previous months.