Falling domestic demand hit Germany's key mechanical engineering sector in July, the VDMA industry federation said on Monday.

The manufacture of machine tools is an important part of Germany's industrial and export performance.

In July, overall incoming orders were stagnant compared with the same month a year earlier, VDMA said in a statement, with export orders rising by 4.0 percent but domestic orders down by 6.0 percent.

Taking a three-month comparison to iron out short-term fluctuations, overall orders were rose by 2.0 percent in the period from May to July.

Foreign orders increased by 4.0 percent in the three-month period, while domestic orders declined by 2.0 percent, VDMA calculated.

"Increased order shortfalls from Russia are being more than compensated for by increased orders from non-European countries and strong industrial plant orders," said VDMA economist Olaf Wortmann.