The British Grand Prix winner, among the favourites for pole in Germany, will start 11th on the grid.
He had been second early in Q2, but eschewed another run and could only watch from the pits as he was pushed outside the top 10.
"It was quite a shock," said Rosberg. "I didn't see it coming. The team didn't expect the track to ramp up that much.
"I can't believe I am standing here right now.
"I thought I would be easily on the front row today."
Rosberg insisted it was a matter of temperatures changing by surprise rather than Mercedes being over-confident.
"It wasn't over confidence, we just didn't judge it correctly," he said.
Although Mercedes has tended to be stronger in qualifying than in race trim, Rosberg is optimistic he will have the pace to move forward on Sunday.
"Degradation-wise, it's better," he said. "The tyres are going to come to our advantage now."
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