BEIJING—China's economic growth slowed unexpectedly in the first quarter, raising concerns that a recovery that started in the second half of last year is already losing steam.
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Gross domestic product grew 7.7% on a year-to-year basis in the first quarter, down from 7.9% in the fourth quarter of 2012 and lower than many economists forecast, according to Chinese official data released on Monday. The median GDP forecast of 14 analysts polled by The Wall Street Journal was 8%.
With the recovery in the U.S. economy still weak, and problems in Cyprus underscoring Europe's lingering debt issues, disappointing growth in China could cast a pall over the global investment outlook. Asian markets fell broadly after the data release Monday morning.
Government officials on Monday cited both the global situation and domestic controls such as efforts to slow property speculation. They also said the data reflected China's increasing emphasis on stable growth rather than the breakneck pace that has resulted in social and environmental woes and other imbalances.
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"The new government has concentrated more on raising the quality of economic growth," said Sheng Laiyun, spokesman for China's National Bureau of Statistics. He added that "7.7% is not a low growth rate given the global and domestic situation, and it's good for companies' restructuring and industrial upgrading."
The economy showed further signs of slowing at the end of the quarter. Industrial output growth decelerated to 8.9% year-on-year in March, down from 9.9% in February. Retail sales also disappointed, with growth at 12.6% year-on-year in March, suggesting cautious households are being slow to support the government's goal of raising domestic consumption.
"The slowdown in the first quarter is very remarkable," said Zhu Haibin, chief China economist at J.P. Morgan JPM -0.61% . "The weakness is quite broad-based on the domestic front."
The performance comes as China has pumped massive amounts of credit into the economy in an attempt to buoy growth. Data last week showed China's banks made 1.06 trillion Chinese yuan ($171 billion) of net new loans in March, up from 620 billon yuan in February and well above expectations, despite pressure from the country's central bank to hold the line on lending.
"We saw very fast growth in credit [in March] but the money isn't going into the real economy," Mr. Zhu said. "That's what we're worried about. We see fast credit growth but the money stays out of the real economy. That will trigger concerns on financial stability."
Lu Ting, an economist with Bank of America BAC -0.82% Merrill Lynch, said the added liquidity might not be felt right away. "It takes time for credit growth to be transmitted to the economy, so it's not the case that if we have strong credit we should have strong growth straight away," he said.
Shanghai's benchmark index was down 0.8% and Hong Kong's down 1.4% immediately after the release. The Australian dollar, which is dependent on China's performance, weakened against the U.S. dollar.
The crucial property market showed signs of strength, with sales up 61.3% year-on-year in the first quarter, sparking higher construction. But analysts said that might reflect a one-off effect, with a rush to buy following the government's plan to clamp down on speculation in the sector.
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