Workers producing dolls in a factory in China. The nation’s economy expanded 7 percent year-on-year in the first quarter, a new low since the global financial crisis, raising analyst expectations for more action to bolster growth. (AFP/Getty Images)

A slump in the property market pushed Chinese economic growth down to 7 percent in the first three months of this year, its lowest quarterly pace since 2009. Premier Li Keqiang warned that the numbers were “not pretty” and that the country should brace for tougher times ahead.

The housing slowdown has also hit heavy industries such as steel and cement, while falling global commodity prices have squeezed industrial profits. The government expects to be able to hold the line at 7 percent for 2015.

That would be the lowest annual rate of growth in 25 years but still considerably faster than most major nations, and enough for the Communist Party to maintain its claim to sound economic leadership.

Economists expect the government to cut interest rates further and bolster infrastructure spending in coming months to prevent a sharper slowdown, but officials acknowledge the risks to the economy have increased.

“Economic data in the first quarter are not pretty,” Li told a seminar Tuesday, a day before the numbers were released, according to the official China Daily newspaper. “Traditional economic driving forces such as consumption and investment are diminishing, while new forces are not compensating.”

Chinese Premier Li Keqiang at a meeting at the Great Hall of the People in Beijing, China. (Shigeru Nagahara/Kyodo News/Reuters)

Li said the nation should be prepared for greater downward pressure on the economy and increasing difficulties, although the premier expressed confidence about the economy’s long-term prospects.

After releasing the economic data Wednesday, Sheng Laiyun, a spokesman for the statistics office, said there was plenty of room to increase spending on infrastructure.

China’s economy traditionally relied on export-led industrial growth, but after the financial crisis of 2007 and 2008, it has depended more on credit-fueled spending and infrastructure investment by the state. The government recognizes that that model is not sustainable indefinitely and is trying to bolster consumer spending.

It would also like to rely less on the heavy industries that have polluted the environment. But as it tries to rebalance the economy, it is also battling a mini-crisis in the form of falling housing sales and a slowdown in construction of new homes.

“The structural issue for China is the permanent slowdown in the housing market,” said Andrew Batson, China economist at Gavekal Dragonomics. “It is not a collapse, but it is a clear slowdown, and it is having a very significant impact on the overall economy, and on sectors such as the heavy-industry sector that produces a lot of steel and cement.”

“In the consumer sector, household incomes are holding up better, but they are not insulated completely from what’s going on in the rest of the economy,” he added.

Li said the economy was in the midst of a transition and warned of tough choices ahead. “For sectors that we have to save, we will help them find new dynamics. For those that need upgrading, we cannot look on and watch them sink. But for those that are outdated, we will knock them down.”

Ahead of the data, the International Monetary Fund also warned that China needs to act fast to rebalance its economy before a sharper slowdown makes the task harder. The IMF predicts that the economy will grow 6.8 percent in 2015 and 6.3 percent in 2016.

“For China, the main risk is failure to implement the reform agenda to address financial risks, rebalance the economy, and tap new sources of growth,” it said in its latest World Economic Outlook.

“Without reforms to change the pattern of growth, vulnerabilities will continue to increase, and the available policy space will shrink,” the IMF said.

Meanwhile, some economists continue to cast doubt on whether the gross domestic product numbers issued by the Chinese government Wednesday add up.

At Daiwa in Hong Kong, senior economist Kevin Lau said exports and industrial production in the first quarter had been poor, while investment and retail sales were also slow.

“So how can GDP in real terms still be 7 percent?” he said, according to Reuters. “In reality, growth must be much lower than that. I don’t think looking at the GDP number is meaningful.”

Lau predicts at least one more cut in interest rates ahead. “If they don’t do anything,” he said, “the real economy will keep suffocating, and the ultimate endgame will be quite ugly.”