Confidence among investors in Germany plunged sharply in July, the ZEW economic institute said today, reaching its lowest level since August 2012 over signs that a trade war was far from abating.

"Above all, fears of an escalation in the international trade war with the US" drove the institute's barometer based on a survey of financial players down 8.6 points to reach -24.7, ZEW president Achim Wambach said.

President Donald Trump has hit steel and aluminium imports to the US with tariffs and threatened to do the same to European cars, after the European Union retaliated with border taxes of its own on American goods. 

Major German firms have also suffered from the White House's trade war with Beijing, the second front in Trump's battle to slash US deficits, as their cars built in America face new tariffs when entering China. 

Investors' views of the current situation in both Germany and the euro zone worsened in July. 

This suggested that recent "good news on industrial production, industrial orders and the labour market are more than cancelled out by the expected negative effects on exports" from the trade war, Wambach said.

Investors surveyed by ZEW also saw a bleaker future outlook for the 19-nation euro zone, with that index falling 6.1 points to reach -18.7.

ZEW polled 201 financial analysts and investors to compile its monthly index.