China's economy is expected to expand by 8.5 percent in the first quarter of 2012, a government think tank said Thursday.

Squeezed by a deteriorating export environment and the government campaign to rein in the property market, the country's economic growth will continue to fall steadily during the first quarter, the State Information Center said in a statement.

The center's growth forecast was down from 8.9 percent in the fourth quarter, and 9.2 percent for the entire year of 2011.

Weakening demand from Western countries and slower growth in China's fixed-asset investments will help ease domestic price pressures, pushing the country's consumer price index, a main gauge of inflation, down to 3.5 percent for the January-March period, the statement said.

The center suggested that the government should fine-tune its macroeconomic policies in a timely manner, ensure funds for projects under construction, continue support for small and micro-sized enterprises and strengthen liquidity management.

The government should also increase the supply of affordable housing by giving priority to land supply for such projects and encouraging banks to issue more loans to the projects, according to the statement.