Analysts polled by Reuters had pointed to a July reading of -10.5.
Higher short-term interest rates in the euro zone and the United States as well as weak export markets like China were key reasons for the negative outlook, said ZEW president Achim Wambach.
Financial market experts predict a further deterioration in the economic situation by year-end, he added.
The fall is in line with the most recent Ifo survey of German business morale and the Sentix index for the euro zone, which both fell more than expected.
"The economic outlook for the second half of the year has become even gloomier," summarized Helaba senior economist Ralf Umlauf on Tuesday with an eye to the indicators.
A ZEW index measuring how investors currently assess the German economy also fell in July, dropping 3 points to -59.5.
The German economy fell into recession in early 2023 as household spending, a key source of growth for Europe's economic engine, succumbed to pressure from high inflation.
Economists do not expect it to make any more big leaps this year - not least because of the sharp rise in key interest rates, which are just beginning to take full effect.
"Hopes for an economic recovery in the second half of the year are melting away," said VP Bank chief economist Thomas Gitzel.
"The German economy is currently being squeezed twice - by high inflation rates and the weak global economy."
Germany's EU-harmonized consumer prices rose by 6.8% in June, interrupting a steady decline since the start of the year, while the core inflation rate, which excludes volatile items such as food and energy, was at 5.8%, up from 5.4% in May.
(Reporting by Rene Wagner and Miranda Murray, Editing by Friederike Heine, Rachel More and Christina Fincher)
