The ZEW confidence indicator rose by 2.3 points to minus 3.5, slightly worse than the expectations of analysts surveyed by Dow Jones Newswires, who forecast a gain to minus 2.8 points.
The index, which is watched for future economic trends, had gained 25.2 points in February, leading some to perceive a glimmer of hope for Germany's economy.
Nevertheless, the institute pointed out that the index was still "well below" its historical average of 26.2 points.
"According to financial market experts, the economic slowdown is gradually phasing out. The bottom of the recession is likely to be reached this summer," said ZEW president Wolfgang Franz in a statement.
He added: "The economic situation is extremely bad, but there are the first signs of hope. They should not be played down."
Germany is facing its worst recession in six decades with Berlin expecting output to shrink by 2.25 this year, a forecast deemed too optimistic by many economists.
The ZEW said recent interest rate cuts by the European Central Bank, as well as lower prices for oil and raw materials might explain investors' continued confidence.
The ECB cut borrowing costs to a new low in March. Interest rates now stand at 1.50 percent.