German gross domestic product (GDP) growth slowed to 0.7 percent in the third quarter after increasing sharply by a revised 2.3 percent in the second quarter.

Markets had expected Europe's largest economy to grow by 0.8 percent in July-Sep quarter.

However, third quarter GDP growth stood at 3.9 percent compared with the same quarter a year earlier, the Federal Statistics Office said on Friday.

The federal office also upwardly revised the GDP in the first and second quarters to 0.6 percent and 2.3 percent respectively.

According to the German economy ministry’s estimate in October, the economy will see the fastest growth in over 19 years at 3.4 percent in 2010, boosted by stronger exports.

Germany's exports to China and other Asian countries helped increase the forecast to 3.4 percent from a prior forecast of 1.4 percent in April, the ministry said. It also forecast outlook of 1.8 percent for 2011, up from a 1.6 percent outlook in April.

German economy had shrunk by 4.7 percent last year - its worst performance since World War II.

However, German industrial production unexpectedly fell by 0.8 percent in September, recording the sharpest fall in 17 months. New factory orders also fell 4 percent in September due to weak demand for capital goods.

“In all, German GDP should expand by 3 percent or more this year, but we still expect a slowdown to about 1.5 percent in 2011,” said Jennifer McKeown, an economist with Capital Economics.

Germany’s trade surplus increased to €16.8 billion ($23.6 billion) in September, compared with €11.5 billion ($16.2 billion) in the same month a year earlier.