* Trade group sees sales up 1 pct vs 1.5 pct previously
* Says industrial customers spooked by Ukraine-Russia crisis
* Q2 sector sales flat year-on-year, prices down 1.7 pct
* Says demand should pick up slightly in H2 (Adds comment by VCI president, Q2 figures, background)
FRANKFURT, Sept 2 (Reuters) - German chemicals trade group VCI on Tuesday cut its sales growth forecast for 2014 as the crisis in Ukraine and trade sanctions against Russia rattle industrial customers and weigh on the overall economy.
"The German chemicals sector suffered an economic setback in the second quarter," VCI President Karl-Ludwig Kley said in a statement.
Weak investment spending and slow trade led the German economy to contract for the first time in over a year in the second quarter, data showed this week, suggesting the country is running out of steam just as the impact of the crisis in Ukraine starts to bite.
Chemicals businesses based in the country reported revenues in the three-month period stagnated from a year earlier as prices for petrochemicals and polymers slid and demand for industrial detergents weakened, said VCI, which represents Germany's No.3 industrial sector.
Kley said demand should pick up slightly in the second half of the year if the geopolitical environment does not worsen but VCI still cut its forecasts for 2014.
VCI now sees 2014 revenues growing by 1 percent to 192.5 billion euros ($253 billion), compared with a previous outlook for 1.5 percent growth. It sees output volumes up 1.5 percent and prices down 1 percent, compared with previous expectations for 2 percent growth and a 0.5 percent decline, respectively.
The largest German chemical and plastics makers are BASF , Evonik, Bayer and Lanxess . Europe's largest chemical producing nation is also home to subsidiaries of major foreign producers such as Dow Chemical, DuPont and LyondellBasell.
($1 = 0.7617 euro) (Reporting by Maria Sheahan; Editing by Christoph Steitz and Mark Potter)