The NTC/BME Purchasing Managers index (PMI) was 53.6 in May, unchanged from April. Readings above 50 indicate growth in the sector, below that level, contraction. A preliminary "flash" estimate of the May index had yielded a reading of 53.5.
The survey, which is based on a monthly poll of about 400 companies, showed that manufacturers accelerated new hiring in May, but that growth in overall orders eased.
The PMI's sub-component index for new export orders declined to 49.2 from 51.8, indicating the first contraction in demand, and the lowest reading, since July 2003.
Euro zone manufacturing activity generally cooled further in May as factory output remained near a three-year low even while edging up slightly from the earlier flash estimate. There is also increasing evidence of a widening divergence between the big four economies in the 15-nation currency bloc with Germany and France continuing to prop-up a contracting Italy and a Spain which is in "free fall". This divergence is only going to add to the headaches over at the European Central Bank, which is already pretty worried about the continuing high inflation.
The RBS/NTC Eurozone Purchasing Managers Index for the manufacturing sector eased to 50.6 in May, down from April's 50.7 but above the earlier flash estimate of 50.5.
In a statement, NTC said a further sign that the outlook in Germany had worsened in May was that manufacturers had accumulated stocks of finished goods at the fastest pace in almost seven years.
"The decline in manufacturers' new export orders suggests a key engine of the current growth cycle ... has begun to subside amid pressure from the strong euro and weakening economic conditions in foreign markets," said NTC economist Tim Moore.
Recent economic indicators in Germany have provided a mixed message on the health of Europe's largest economy. The Ifo institute's gauge of business confidence in Germany rose for the fourth time in five months in May, but retail sales slumped for a second straight month in April.
Last month also saw the first seasonally adjusted increase in unemployment in Germany for over two years, prompting some to predict the country's labour market improvement was ending. A resurgence in inflation in May also stirred fears that rising prices would impact negatively on consumer spending, which accounts for nearly 60 percent of the economy.
NTC said the May survey data pointed to strong inflationary pressure in the manufacturing sector, with average input costs rising at their sharpest since July last year.
"A number of companies commented on higher steel and oil-related costs at their plants," NTC said. "Firms responded to the latest squeeze on their margins with a robust increase in factory gate prices, with the rate of output charge inflation only fractionally less marked than April's recent high."