"There will be an upward trend for the German chemical industry next year, but only a slow one," said the VCI's chairman, Karl-Ludwig Kley, who is also the chief executive of chemicals and drugs maker Merck KGaA (>> Merck KGaA).

The lobby group, which represents Germany's third-largest industrial sector, expects sales to grow 0.5 percent this year.

Output volumes are likely to increase by 2 percent in 2014 after an expected gain of 1.5 percent in 2013, it added.

VCI last month cut its 2013 forecast for the third time this year, citing lower prices and a sluggish export business.

The subdued outlook comes shortly after the start of collective bargaining over industry pay.

German chemical industry workers have said they want 5.5 percent more pay, citing improving business conditions. The industry's employers association has rejected the demands, saying they are far from realistic.

The largest German chemical companies are BASF (>> BASF SE), Evonik (>> Evonik Industries AG), Bayer (>> Bayer AG) and Lanxess (>> Lanxess AG).

Major foreign producers such as Dow Chemical (>> The Dow Chemical Company), DuPont (>> E I Du Pont De Nemours And Co) and LyondellBasell (>> LyondellBasell Industries NV) also operate sites in Germany, which is Europe's largest chemical producing nation.

(Reporting by Frank Siebelt; Writing by Ludwig Burger; Editing by Maria Sheahan and Greg Mahlich)