German industrial orders rose far more than expected in July in their sharpest increase in more than a year, driven by robust demand for capital goods from abroad.

The figures raised hopes for a rebound in Europe's biggest economy in the third quarter. 

Economy ministry data released today showed a 4.6% month-on-month increase in orders in July, way over the Reuters consensus forecast for a 1.5% increase. 

"After the uncertainty caused by geopolitical developments and a weaker economy in the second quarter, the strong rise in orders is an encouraging signal for the industrial economy," said the ministry in a statement. 

The ministry said big-ticket items had played a role in the increase but underlying activity was also positive. 

Germany's economy shrank by 0.2% in the second quarter due to weak investment and slow trade. Some economists fear Europe's economic engine will slip into recession in the third quarter. 

Markit's composite Purchasing Managers' Index (PMI) showed yesterday that Germany's private sector expanded at its slowest pace in 10 months in August as manufacturing grew at a weaker rate. 

Orders for capital goods rose 8.5%, driven by a 14.6% increase in demand from countries outside the euro zone while contracts from members of the single currency rose just 2.9%. 

The July increase in overall orders was the strongest since June last year. The data for June this year was revised up to -2.7% from -3.2% previously.