BERLIN—German business confidence has dropped sharply as company managers’ outlook for the coming months darkens following the Russian invasion of Ukraine, a survey showed Friday. The Ifo institute said its monthly confidence index, a closely watched indicator in Europe’s biggest economy, fell to 90.8 points in March from 95.8 in February. It said that sentiment “collapsed.” Company managers’ assessment of their current situation was slightly worse than in February, but their outlook for the next six months was far worse. The index’s expectations component fell by a record amount, even more sharply than it did when the coronavirus pandemic hit Germany in March 2020, Ifo said. “Companies in Germany are expecting tough times,” Ifo said in a statement. Before the war in Ukraine broke out, business confidence had risen for two months in a row.