China's economy grew 6.7 percent in the three months of 2016, its slowest quarterly expansion in seven years, the government said Friday, but indicators for March improved.

The figure released by the National Bureau of Statistics (NBS) matched the median forecast of economists polled by AFP before the release, and was within the government's target of 6.5-7.0 percent for the year.

And in a positive signal for the world's second largest economy, a key driver of global growth, industrial output rose 6.8 percent in March, the NBS said, accelerating from the previous month and beating expectations.

The economy saw "sound development" in the first quarter, NBS spokesman Sheng Laiyun said, adding that the figures showed "positive changes on major indicators".

But he cautioned: "We must be aware that we are in a critical stage of transformation and upgrading as well as replacing old drivers of growth with new ones."

As well as industrial output, which measures production at the country's factories, workshops and mines, figures for retail sales and fixed asset investment also came in ahead of expectations in a Bloomberg News poll.

Retail sales, a key indicator of consumer spending, increased 10.5 percent year-on-year in March, the NBS said, while fixed asset investment, a measure of mainly government spending on infrastructure, expanded 10.7 percent in the first quarter compared to the same period in 2015.

China's leaders are looking to manage a difficult transition away from the investment- and export-led model of the past to an economy more driven by consumer demand, but the change is proving bumpy and global markets have fretted over the outlook.

Services accounted for 56.9 percent of the economy in the first quarter, the NBS spokesman said, two percent more than last year and nearly 20 percent more than secondary industry, which includes mining, manufacturing and construction.

But while the growth rate was "better than expected" and the economy showed "a turn to stabilisation", Sheng warned that "we can't be over optimistic" given uncertainties in the world economy.

"Difficulties on structural adjustment persist and downward pressure on the economy cannot be ignored," he added.

- 'Upward revisions' -

Louis Kuijs of Oxford Economics said Friday's figures showed "a milder deceleration than many had feared", which was leading to "upward revisions" in growth forecasts.

But the outlook for most expansion drivers was "still subdued" he said, so "the government will need to continue to rely on stimulus, notably infrastructure investment" in order to hit its "overly ambitious" growth targets.

ANZ economists said the data suggested a "stabilisation of the 'old economy'", but added that they were "cautious on the composition of growth", particularly the amount derived from financial services.

They predicted that the central bank will keep interest rates low "in light of increasing cases of credit defaults" but would be less aggressive with monetary easing as property bubbles have "started to be of a concern to policymakers".

They were "still sceptical" about how effective monetary policy was at boosting the real economy, they added.

The figures came on the back of other positive signs for China's economy, which maintained steady inflation of 2.3 percent in March and showed its first month-on-month rise in producer prices in two and a half years.

Exports surged 11.5 percent on-year in March, beating expectations and snapping an eight-month streak of declines, while the Purchasing Managers' Index (PMI) rebounded to 50.2 for the month, a sign of expanding activity in the sector.