* Ups 2014 EU growth forecast to 1.6 pct, euro zone to 1.2
* Business group says expects growth to accelerate in 2015
* Says geopolitical tension is main risk
* Russian downturn, Finland already in recession
BRUSSELS, May 21 European businesses regard the
Ukraine crisis and the prospect of broadening sanctions against
Russia as the greatest threats to the region's economic
recovery, BUSINESSEUROPE said on Wednesday.
BUSINESSEUROPE, which represents business federations in 35
countries, said in its spring outlook that Europe's economy
should gain strength this year and next as domestic demand
replaced exports as the engine of growth.
However, the recovery remained fragile with more downside
than upside risks, chief among the former being an escalation of
tensions in Ukraine.
The federation asked members whether factors such as the
exchange rate or carbon emission prices were more positive or
negative risks for their outlooks and rated them according to
the gap between positive and negative responses. The most
negative reading was clearly for the geopolitical situation.
That balance stood at zero in November, when members were
most concerned about the threat of tax hikes.
The Russian economy is likely in recession, its economy
minister said last week, while the International
Monetary Fund has warned that Ukraine-related sanctions are
scaring off investors and depressing growth.
The West has to date imposed sanctions focused on
individuals and a handful of companies, but has threatened a
third phase of sanctions that would target sectors.
BUSINESSEUROPE said it was not in favour of broader economic
"We already have a clear downturn in Russia and we start to
see the effects," General Secretary Markus Beyrer told a news
briefing. "This is a concern as there is a negative impact on
growth in a recovery."
Finland, about 10 percent of whose exports go to Russia, has
already slipped into recession.
Some 7.3 percent of EU exports head to Russia, while the EU
is the market for 45 percent of Russian exports.
Despite the negative risks, BUSINESSEUROPE raised its
forecasts for growth to 1.6 percent for the European Union and
to 1.2 percent for the euro zone, from 1.4 and 1.1 percent
It sees EU growth accelerating to 1.9 percent in 2015 and in
the euro area to 1.6 percent.
BUSINESSEUROPE's report, published on the eve of European
Parliament elections, said such rosier prospects should not lead
EU member states to ease up on reform programmes, particularly
those designed to boost competitiveness.
The federation's members found that only 23 percent of the
European Commission's 150 country-specific recommendations had
been satisfactorily implemented.
EU investment as a share of GDP was still far below
pre-crisis levels and also significantly behind equivalent
figures in the United States and Japan.
Access to finance was the key to raising investment, the
federation said, with large companies able to access bond
markets but smaller enterprises still relying on banks that were
reluctant to lend.
BUSINESSEUROPE called for a full implementation of the EU's
banking union to help narrow the divergence of lending rates
across the region. It also said the European Central Bank's
health check of banks needed to be thorough and robust to help
restore confidence in financial institutions.
(Reporting by Philip Blenkinsop; Editing by Hugh Lawson)