Despite strong current economic growth, the ZEW sentiment indicator, based on a survey of analysts and institutional investors, plunged 18.3 points to minus 4.3 points, its fifth monthly drop in a row.
It was also the lowest level since sentiment registered minus 5.8 points in February 2009, and far below a historical average of 27.2 points, ZEW said in a statement.
By falling into negative territory, the index also showed that for the first time since March 2009, more investors expect economic conditions to deteriorate than to improve in the next six months.
But those polled also assessed current conditions much more favourably, with a corresponding index jumping to 59.9 points in September from 44.3 points the previous month.
That was the 16th increase running and the highest level since December 2007, ING senior economist Carsten Brzeski noted.
ZEW president Wolfgang Franz was quoted as saying: "In their expectations, financial experts put more weight on risks than they did before.
"These are for example the slowdown of the US growth and the yet unresolved problems in the eurozone which are for instance reflected by the large interest rate spreads for Greek government bonds."
Across the 16-nation eurozone, data from the Eurostat statistics agency showed industrial production was flat in July, and weaker in June than initially estimated.
Output was also stagnant in the wider 27-nation European Union, which includes Britain and eastern industrial power Poland.
In Germany, Finance Minister Wolfgang Schäuble told lawmakers Tuesday that although "we will not have the same growth next year as this year," he still expected "continued and sustainable economic development."
Economists forecast 2010 growth of 3.0 percent for Germany but expect the pace to slow markedly next year.
The latest data on German industrial output showed it edging higher by just 0.1 percent in July while a drop in orders suggested weaker activity ahead.
"This may not only indicate a temporary slowdown but could well be the first sign of a flattening of economic activity" from record quarterly growth of 2.2 percent in the second quarter of the year, ZEW said.
But while Germany's economy was clearly slowing down, it will also probably continue to grow, economists forecast.
An order backlog and strengthening domestic demand should support business activity, and low interest rates and rising utilisation of industrial capacity should stimulate investment in machinery and equipment, several noted.
A clearer picture should emerge with the release of the Ifo business index next week, they added.
Brzeski stressed meanwhile that the pattern of improving current conditions and deteriorating expectations was last seen in mid-2006, and was followed by "a period of solid growth until the start of the financial crisis" in mid-2007.