Falling domestic demand weighed on Germany's key mechanical engineering sector in May, the VDMA industry federation said Wednesday.

The manufacture of machine tools is a key driver of German industry and exports.

In May, overall incoming orders declined by two percent compared with the same month a year earlier, VDMA said in a statement.

Domestic orders were down four percent while export orders stagnated, VDMA added.

Using a three-month comparison to iron out short-term fluctuations, VDMA said overall orders were flat in the period from March to May.

Foreign orders edged up slightly by one percent in the three-month period, while domestic orders fell by two percent, VDMA calculated.

"Germany's mechanical engineering sector is still waiting for a breakthrough," said VDMA chief economist Ralph Wiechers.

"The year got off to a rather mixed start," he said.

Nevertheless, the federation was confident that during the course of the year, the sector would approach its target for a two percent increase in output, Wiechers said.

He said the Greek crisis had not left any mark on the sector so far.

"Greece isn't a large market for us," accounting for just 360 million euros ($400 million) or 0.2 percent of all exports in the sector last year, Wiechers said.