Though the PMI was not as bad as first estimated a couple of weeks back, it fell to 46.8 points in March from 47.9 in February. Anything below 50 indicates an economic contraction.
The worry in the PMI survey was that manufacturing activity weakened across the eurozone, including Germany, Europe's export powerhouse.
"While in some respects it is reassuring to see that the events in Cyprus did not cause an immediate impact on business activity, with the final survey results even coming in slightly higher than the flash estimate, the concern is that the latest chapter in the region's crisis will have hit demand further in April," said Chris Williamson, chief economist at Markit.
Juergen Baetz in Brussels contributed to this report.