German industrial orders increased unexpectedly in October thanks to domestic and non-euro zone demand, suggesting this sector of Europe's biggest economy is likely to gain steam in the coming months. 

Contracts for 'Made in Germany' goods rose for a third consecutive month, with Economy Ministry data showing factories took 0.5% more orders in October than in the previous month despite bulk orders being below average for the month. 

The reading confounded expectations in a Reuters poll for a 0.3% drop and came after an upwardly revised 1.2% increase in bookings in September. 

The German economy has been expanding since 2010 and gained traction in the third quarter but worries are mounting as Germany still lacks a new government more than two months after a national election. 

Chancellor Angela Merkel's conservatives lost votes to the far-right in the September poll and are now hoping the Social Democrats (SPD) will agree to a re-run of the current 'grand coalition' after talks on forming a three-way alliance with the environmentalist Greens and pro-business Free Democrats failed. 

Nonetheless, the Economy Ministry said strong order activity, combined with record-high business confidence, pointed to the manufacturing sector continuing to grow strongly. 

A breakdown of the orders data showed foreign demand picked up by 0.5% as a 1.6% surge in contracts from outside the currency bloc offset a 1.2% drop in euro zone bookings. Domestic contracts were up by 0.4%. 

Appetite for both capital and consumer goods increased in October, although demand for intermediate goods was down slightly. 

In the less volatile two-month comparison, contracts were overall 3.4% above the level of the previous two months.

That chimes with other recent data, which has painted a broadly positive picture of the manufacturing sector. Engineering orders increased by 9% on the year in October while factory growth hit its second-highest in more than two decades in November.