New-car sales in Germany bounced back in July, suggesting further improvement in second-half demand in Europe’s largest auto market.

Registrations of passenger cars rose 7 percent to 270,249 last month, figures released today by the German Federal Transport Office (KBA) showed.

By comparison, sales fell 2 percent in June because the same month a year earlier had one more working day. Last month’s increase was the highest since January’s 7 percent gain.

Seven-month sales are up 3 percent to 1.81 million units.

“Germany is very much back on track in terms of volumes,” said Jonathon Poskitt, head of European forecasting for LMC Automotive. “The July result is certainly a positive development, reflecting a solid economic backdrop and generally improving consumer confidence.”

However, Poskitt cautioned that discounts continue to fuel sales in Europe’s key market and the region as a whole, eating into carmakers’ profit margins and casting doubt on the strength of the recovery.

“Incentives have been a feature in that market, and Europe more generally, for some time and we would not expect that to change greatly any time soon given the still relatively fragile market environment in the region,” he said.

The rebound in Germany contrasts with a drop in France, Europe’s No. 3 market, where light vehicle registrations fell 4 percent to 143,777 autos in July, paring year-to-date gains to 2 percent. Sales in Italy, Europe’s fourth-largest car market, rose 5 percent last month to 113,777 vehicles.

Europe’s car industry endured a six-year slump, with sales falling to their lowest level in two decades as austerity-hit consumers cut back on expensive purchases, but the market has gradually returned to growth.

With auto sales in the region having risen for 10 straight months, LMC has predicted “more slow and steady growth” for the remainder of 2014, with Germany predicted to grow 3 percent to 4 percent on last year’s 2.95 million deliveries.