By Gabriele Steinhauser 

BRUSSELS--Growth in the eurozone and the wider European Union will be slightly weaker this year than previously forecast, the European Commission said Thursday, warning that the economic slowdown in China and other emerging markets, as well as failure to deal with the refugee and migration crisis, could further hurt the economy.

The economy of the 19-country eurozone is expected to grow 1.7% this year. While that is a slight improvement from the 1.6% growth in 2015, it is somewhat lower than the 1.8% expansion the commission had forecast in November. In 2017, the eurozone economy will now likely expand 1.9%, the commission said, in line with earlier predictions.

Growth in the 28-country EU is expected stay at 1.9% this year, in line with in 2015, but down slightly from the commission's November forecast. The commission sees the EU economic output expanding 2% next year, also slightly below the 2.1% forecast earlier.

The new forecasts highlight how the EU continues to struggle in its recovery from the 2008 financial crisis and the debt crisis that followed--despite conditions such as falling oil prices, lower government funding costs and the relatively low value of the euro that usually help economic growth.

"The recovery is slow, both in historical perspective and compared to other advanced economies," the commission said.

One factor that continues to weigh on sentiment, especially in the eurozone, is persistently low inflation--despite efforts by the European Central Bank to push up consumer prices through a big asset-purchase program.

The commission now expects the rate of inflation in the eurozone to be just 0.5% this year, down from the 1% previously forecast. In 2017, inflation in the currency union is now seen at 1.5%, down from the 1.6% predicted earlier and still below the close-to-2% targeted by the ECB.

In the EU, consumer prices are expected to grow 1.5% this year and 1.6% next year.

Despite the damper on growth and inflation, the commission sees unemployment falling slightly more than previously forecast, although it remains elevated. The jobless rate in the eurozone is expected to drop to 10.5% this year, from 11% last year, before falling to 10.2% in 2017.

In the EU, the rate of unemployment is now expected to fall to 9% this year, from 9.5% in 2015. In 2017, EU unemployment should fall to 8.7%, the commission said.

"The European economy is successfully weathering new challenges this winter, supported by cheap oil, the euro rate and low interest rates," said Pierre Moscovici, the EU commissioner for economic and financial affairs. "Nonetheless, the weaker global environment poses a risk and means we must be doubly vigilant."

While a deeper drop in oil prices is usually a boon for the EU, which has to import most of its energy, it hurts some of its trading partners and global commerce more generally. Throughout the forecast, the commission highlighted risks emerging from China and stronger-than expected market turmoil there.

"The central scenario of a 'soft landing' in China is subject to substantial risks," the commission said.

Internal issues also continue to hamper the European economy. The commission is once again locked in negotiations with Greece over its spending and pension policies and failure in Spain to form a government following a surge of antiestablishment parties risks derailing austerity measures there. On Friday, the EU executive will decide whether to take an unprecedented step and reject Portugal's 2016 budget. The government in Lisbon has to reduce its deficit by an additional EUR950 million ($1.05 billion) from the budget plan it presented last week, according to EU officials.

The commission stayed away from putting a number on the economic and budget impacts of the migration crisis or the threat from terrorist attacks such as the ones that hit Paris in November. It said that newly arrived refugees and asylum seekers have so far boosted consumption in the main reception countries and could help growth in the future if they can be successfully integrated.

Yet it also warned of substantial costs if governments bungle their response and resort to breaking down the open-border Schengen zone.

"The main risks both externally and domestically are 'political'," wrote Marco Buti, the director general of the commission's economy department. "Leadership at the global and European level showing that common actions are agreed and swiftly implemented would be the most effective answer to the present economic woes."

Also missing from the forecasts was an assessment of the economic impact of a potential decision by the U.K. to leave the EU. A referendum on the country's membership in the bloc could be held as early as June and a withdrawal of the EU's second-largest economy would deal a major blow to the union.

Mr. Moscovici said the omission was intentional. "It is not in our forecast, because it is not on our minds," he told reporters.

Write to Gabriele Steinhauser at gabriele.steinhauser@wsj.com

(END) Dow Jones Newswires

February 04, 2016 07:54 ET (12:54 GMT)

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