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China GDP: It's not going to be pretty

Chinese workers cutting wood at a factory in Dehua, Fujian Province of China.
Kevin Frayer | Getty Images
Chinese workers cutting wood at a factory in Dehua, Fujian Province of China.

China's economic growth for the first three months of 2015 could well hit a multi-year low, experts say, increasing the pressure on Beijing to curb the marked slowdown.

Due on Wednesday, the world's second-largest economy is expected to show a 7 percent annual increase in its gross domestic product (GDP) in the first quarter , according to a Reuters poll, marking the slowest pace since the same period in 2009 and down from 7.3 percent in the previous three months.

The estimate is also lower than the country's 2014 growth of 7.4 percent - the lowest gross domestic product (GDP) that the mainland has seen in 24 years - but roughly in line with the "around 7 percent" target announced at the annual National People's Congress (NPC) last month.

Over the weekend, Chinese premier Li Keqiang said the nation faces increased downward pressure, which the government must "stand up to" in order to avoid an impact on employment and incomes.

"Real activity data were quite weak in the first two months this year. While some data, such as the purchasing managers' index (PMI), suggested that the momentum has picked up somewhat, other figures indicate that China [remains in a] difficult position," wrote Li-Gang Liu, ANZ's chief economist of Greater China, in a report. ANZ economists expect China's economy to expand only 6.9 percent in the first quarter.

Scheduled for release alongside the GDP data are figures for factory output growth, fixed asset investment and retail sales for March -- all of which could affirm the uncertainty over China's economic outlook.

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More stimulus to come

To prop up the country's growth, especially in its all-important property sector, the People's Bank of China (PBoC) loosened mortgage restrictions and eased property transaction tax end of last month. Prior to that, the central bank unexpectedly cut interest rates in February, after reducing the one-year benchmark lending rate by 40 basis points and the one-year benchmark deposit rate by 25 basis points last November.

Still, recent economic indicators continue to paint a tepid recovery picture in the Asian economic giant.

Exports for March posted a wider-than-expected tumble of 14.6 percent from a year ago, due to weak global demand and the impact of the Lunar New Year holiday. Consumer prices steadied at 1.4 percent in the same month, but analysts say the flatlining of inflation suggests that China is still growing slower than expected - in spite of the recent measures.

This leaves the door open to further easing. "Recent stimulus measures may not necessarily be fully reflected in activity [hence] that raises the prospects of more targeted easing," Mizuho Bank's analysts said.

Asian investment bank CLSA agrees and expects the PBOC to follow up with another interest rate cut as early as this month.

"Post the NPC, the government will be more aggressive in supporting the economy, with a rate cut this month. We anticipate the second quarter to be a better quarter," Francis Cheung, head of China & Hong Kong strategy at CLSA, said.

No fear for stocks

For investors, a disappointing growth figure from the mainland may not necessarily be all that bad.

"There's been a disconnect between Chinese stocks and the economy. If the data turns out to be weak, it's actually good news because the PBOC will ease further, which means more money going into stocks," Vasu Menon, vice president of OCBC's Wealth Management Group, told CNBC on Monday.

While the ongoing rally has stoked fears of a possible repeat of 2008's market crash, analysts say further stimulus measures are inevitable with economic growth remaining the top of Beijing's priorities.

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"Policymakers might be torn between easing more aggressively and the potential risks of letting too much liquidity into the market and repeating what happened in 2008," said Helen Qiao, chief economist, Greater China at Morgan Stanley.

"But, the rally isn't that bad. Given that leverage is very high, changing some of that from debt form into equity form may not be a bad idea," she added.

On Monday, the benchmark Shanghai Composite closed up over 2 percent to a new seven-year high. The world's best-performing index has risen 27 percent year-to-date after a blistering run-up of 52.8 percent in 2014.