European Commission report sees euro-area economy lagging behind competitors

The euro-area economy will continue to lag behind its main competitors, the U.S. and China, this year and next as high levels of unemployment and debt hinder the currency bloc’s recovery.

Gross domestic product in the 18-nation eurozone will rise by 1.2 percent in 2014, an improvement from a 1.1 percent forecast in November, the Brussels-based European Commission said on Tuesday. While the unemployment rate will decrease to 12 percent this year, that’s still the second-highest level in the euro era. And gross government debt will rise slightly to 95.9 percent of GDP.

“As long as debt in several sectors of the economy remains too high, unemployment is at record levels and the adjustment of previous imbalances is incomplete, there is a serious risk of growth remaining stuck in low gear,” Marco Buti, the head of the commission’s economics department, said in a statement.

The latest outlook confirms that the scars from the ravages of the sovereign-debt crisis are healing slowly. While bond markets have stabilized and economic confidence is picking up, policy makers from Helsinki to Madrid are still grappling with slower growth and a higher unemployment rate than before the crisis started in 2008.

Tuesday's euro-area forecasts don’t come close to matching the predicted expansion in the world’s other largest economies. The commission forecasts 2.9 percent growth in the U.S. this year and 7.4 percent in China.

“The recent string of positive economic news has helped to balance the risks to the growth outlook since the autumn forecast, but on the whole downside risks continue to prevail,” the commission said in Tuesday’s report. The main risks to the forecast are stalling reforms, lower-than-expected inflation and...