Confidence among German investors nosedived in August amid tensions between Russia and the west which are expected to bring Europe's largest economy to a standstill.

The ZEW indicator of economic sentiment plunged more sharply than expected to a 20-month low of 8.6 points from 27.1 points in July. Economists polled by Reuters had forecast a far smaller fall, to 18.2 points.

The index, which measures investors' expectations for the economy in six months' time, has fallen for eight consecutive months. Heightened geopolitical tensions are raising fears that the eurozone's weak recovery will be snuffed out altogether, and that Germany's economy will flatline.

As Russia's biggest trading partner in the EU, Germany is expected to be one of the economies hardest hit by Vladimir Putin's dispute with the west over his treatment of Ukraine, which has triggered sanctions and countersanctions.

"Fear is back," said Carsten Brzeski, an economist at ING. "The German ZEW just sent more signs of caution, showing that at least financial market participants are increasingly becoming pessimistic."

The authors of the report said the decline in economic sentiment was the result of the geopolitical tensions that have begun to weigh on Germany's growth.

"In particular, current figures on industrial production and incoming orders suggest markedly reduced investment activities on the part of German firms against the backdrop of uncertain sales prospects. Since the economy in the eurozone is not gaining momentum either, the signs are that economic growth in Germany will be weaker in 2014 than expected."

The extent of Germany's woes will be laid bare on Thursday, when the first official estimate of second-quarter GDP is expected to show zero growth, following 0.8% growth in the first quarter.

Growth in the eurozone is also expected to slow to 0.1% between April and June, from 0.2% in the first three months of the year.

Brzeski said the danger for Germany was that a weak second quarter could turn into something more serious. "Looking ahead, today's ZEW sends a worrying signal that the growth performance in the second quarter could suddenly morph from a one-off into an undesired trend. Up to now, the fallout of the Ukraine crisis has been limited to a general return of uncertainty and a sharp drop in German exports to Russia. Obviously, a further escalation of the crisis could start to really hurt the economy."