Strong demand from euro zone countries and domestic customers drove a bigger-than-expected rise in German industrial orders in August.

The figures suggested that factories will contribute to growth in Europe's economic powerhouse in coming months. 

The surprisingly strong data, published by the Economy Ministry, gave some relief after a batch of weak data in July had raised concern that the German economy could be heading towards a sharp slowdown in the second half. 

Contracts for goods 'Made in Germany' were up by 1% on the month, the data showed.

That was the highest reading since March and far better than a Reuters consensus forecast for a rise of only 0.2%. 

Domestic demand rose by 2.6% while foreign orders inched down by 0.2%. However, demand from euro zone countries rose by 4.1%, nearly offsetting a drop of 2.8% of contracts from outside the common currency bloc. 

The data for July was slightly revised up to a rise of 0.3% from a previously reported increase of 0.2%. 

"Industrial orders have been weak so far this year, but they recently picked up slightly," the ministry said, adding that Ifo's business sentiment survey and Markit's purchasing manager survey both signalled an improvement. 

"Overall, the latest data point to a light upturn in the industrial sector over the rest of the year," the ministry added. 

After having grown by 0.7% in the first quarter and 0.4% in the second, the Germany economy is widely expected to lose some steam in the second half, hampered by sluggish demand from Asia and the US. 

But leading German economic institutes last week raised their 2016 growth forecast to 1.9%, which would be the strongest rate in five years, mainly driven by soaring private consumption and higher state spending on migrants. 

The government will update its own growth forecasts for 2016 and 2017 tomorrow. It predicts a 1.7% expansion this year and 1.5% next year.