China grew at its slowest pace in six years at the start of 2015 and weakness in key sectors suggested the world's second-largest economy was still losing momentum, intensifying Beijing's struggle to find the right policy mix to shore up activity.
Measures to support the property sector and a series of cuts in interest rates and bank reserve requirements look to have delivered less support to the economy than hoped, apart from feeding a stock market surge, raising expectations of more stimulus soon.
Gross domestic product (GDP) grew an annual 7.0 percent in the first quarter, slowing from 7.3 percent in the fourth quarter of 2014, China's statistics bureau said. While matching the median forecast in a Reuters poll, some analysts said it seemed stronger than data on the components of growth suggested.
"Despite a headline growth rate in line with expectations, underlying economic activities appear to have softened further," Qu Hongbin, HSBC's co-head of Asian Economic Research, said in a note.
"We expect policy makers to deploy further monetary easing and other growth-supporting measures in the coming weeks."
Analysts calculated the GDP deflator had fallen 1.2 percent, a six-year low, indicating broad deflationary pressures.
Monthly retail sales, industrial output and fixed asset investment data released with the GDP figures all missed analyst expectations. Growth in fixed-asset investment (FAI), a key economic driver, was the slowest since 2000, while industrial output grew at its weakest since the global financial crisis in 2008.
Power output, which some analysts use as a proxy for economic activity, fell an annual 3.7 percent in March, the biggest fall since the 2008 crisis.
More bad news came from the real estate sector, a major economic pillar and where investment rose an annual 8.5 percent in the first quarter, the weakest rate since 2009.
"If you look at Q1, exports were poor, industrial production was poor, FAI was much slower, retail sales soft, so how can GDP in real terms still be 7 percent?" said Kevin Lai, senior economist at Daiwa in Hong Kong.
The National Bureau of Statistics did not release a breakdown of the GDP data, saying the final figures were not yet available.
WEAKEST SINCE GLOBAL CRISIS
It was China's weakest expansion since the first quarter of 2009, when the global financial crisis saw growth tumble to 6.6 percent. A massive stimulus package pulled China out of the slump, but saddled local governments with a mountain of debt.
Sheng Laiyun, the spokesman at the statistics bureau, sought to allay fears that the slowdown was getting out of hand.
"The risk of the Chinese economy having a 'double dip' or a 'hard landing' is very small," he told reporters, adding that China would meet its 2015 GDP growth target of around 7 percent.
The stock market .SSEC .CSI300, which has surged about 70 percent since Beijing began cutting rates in November, ceded early gains to be down 0.9 percent. Mainland investors have tended to see weak data as strengthening the case for easier policy and cash injections, some of which flow into shares.
And many analysts did see further easing as imminent, as Wednesday's data followed figures showing a fall in exports in March and slower-than-expected growth in money supply."We maintain our forecasts of one interest rate cut in the second quarter and two additional reserve requirement ratio cuts, with the risk of more," economists at Barclays said in a note.
DEFLATION RISKS
Chinese leaders, while emphasizing the need for slower but better-quality growth, have made clear they would not tolerate widespread job losses, a danger that is contained for now. A survey-based unemployment rate was flat at 5.1 percent, Sheng from the statistics agency said, unchanged from 2014.
Yet some analysts warned this could change if deflationary risks push firms to shed more jobs, and if Beijing carries out threats to allow more companies fighting overcapacity to fail.
"This is an economy in need of substantially easier financial conditions," Westpac economists said in a note.
"Lower benchmark lending rates, in addition to a more energetic quantitative effort from the People's Bank of China, should come into play without undue delay."
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