The widely watched investor confidence index calculated by the ZEW economic institute sank 12.9 points from August to stand at just 12.1 points - a level not seen for almost a year and far short of analysts' expectations.

ZEW president Clemens Fuest said in a statement that the "weakening economic development" in the world's emerging economies "dampens" the outlook for Germany's export-oriented economy.

"While economy growth in the second quarter was largely driven by external demand, it is becoming less likely that exports will stimulate growth in the near future," he added.

The drop is the sixth consecutive monthly fall, with the index far lower than the 18.6 points that analysts polled by financial services company FactSet had been expecting.

Jonathan Loynes, chief European economist at Capital economics, told the news agency AFP the survey confirmed that recent market turmoil and concerns over the global environment had an "adverse impact" on German investor confidence.

No need to worry

Nevertheless, the analysts were quick to point out that the German economic engine was in good shape and that weakness in demand from China could increasingly be compensated by growth in Europe and the United States.

"The German economy remains in a strong position due to the renewed drop in the oil price, the weak euro, low funding costs and a robust labor market," noted Johannes Gareis, a eurozone economist at Natixis. "Moreover, many eurozone countries have been seeing an uptick in their economy and solid growth in the US and other important export markets should work against the weakness in trade with China."

ZEW's sub-index measuring financial market players' view of the current economic situation had indeed improved slightly, increasing 1.8 points to 67.5 points. Sentiment for the eurozone however declined by 14.3 points to 33.3 points.

For ING analyst Carsten Brzeski, "low commodity prices and the weak euro are still the best doping for the German economy".

With the prospects of a first US Fed interest rate hike and possibly more fiscal stimulus from the European Central Bank (ECB), the German economy's life on steroids would not end any time soon, the analyst added.

uhe/tk (AFP, Reuters, dpa)