"The German chemical industry is treading water and hopes of an improvement by the end of the year are fading," Markus Steilemann, VCI president and chief executive at Covestro, said in a press release.

The German chemicals sector, the country's third-largest industry, employing roughly half a million workers, continues to struggle as customers are reluctant to place new orders as prolonged economic uncertainty keeps raw materials and energy prices high.

The association recorded an annual fall in production volumes including pharmaceuticals of 6.1% in July-September, while revenue dropped by 13.8%.

However, quarter-on-quarter, production grew slightly by 0.1% - the first quarterly increase in 1.5 years. "Although the trough appears to have been reached, a turnaround is not yet discernible," the chemicals lobby said in a statement.

VCI also confirmed its gloomy annual forecast of an 8% decline in production volumes including pharmaceuticals and a 14% drop in sales.

VCI remains pessimistic even after the German government introduced a long-anticipated energy relief package.

"The government's electricity price package will not be enough to raise the international competitiveness of our companies to a new level," Steilemann said.

"We are still missing real relief for our energy-intensive industry," he added.

(Reporting by Andrey Sychev, Anastasiia Kozlova and Patricia Weiss, Editing by Miranda Murray)