German economic activity will pick up slightly in the fourth quarter as household spending remains strong and exports are likely to improve, the Finance Ministry said today.

This added to signs that Europe's biggest economy is set for a rebound. 

Rising private consumption, increased state spending and brisker construction activity helped the German economy grow by 0.7% in the first quarter and 0.4% in the second. 

But the quarterly growth rate halved to 0.2% in the third quarter as a drop in exports to major trading partners put the brakes on overall economic expansion. 

"For the final quarter, indicators are signalling a light acceleration in overall economic activity," the Finance Ministry said in its monthly report. 

Private consumption remained robust due to a resilient labour market and moderate inflation, it added. 

The German manufacturing sector had a good start to the fourth quarter with industrial orders picking up and business sentiment among manufacturers improving, it said. 

"Exports are showing a slight upward trend even though the trade-related risks remain high," the ministry added. 

The economic upturn is pushing up tax income. From January to November, revenues of the federal government and the 16 states rose 4.4% on the year, the ministry said. That is above the projected rise of 3.6% for the whole year. 

The buoyant tax revenue is enabling Chancellor Angela Merkel's government to increase state spending on roads, faster internet and refugees without taking on new debt. 

This means Finance Minister Wolfgang Schaeuble can stick to his cherished but internationally criticised goal of a balanced budget before federal elections next year. 

The DIW economic institute expects the German economy to have grown by 0.4% in the fourth quarter. 

The Federal Statistics Office will release preliminary GDP growth data for 2016 as a whole and the final quarter on January 12.