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Construction work being done on a condominium in Toronto.

Deborah Baic/The Globe and Mail

Canada's economy limped through a brutal winter, with growth slowing to an annual pace of 1.2 per cent in the first three months of the year.

It was the weakest growth since the fourth quarter of 2012.

Friday's measure by Statistics Canada of gross domestic product in the first quarter marked a decleration from the 2.7 per cent of the final three months of 2013.

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That fourth-quarter reading was revised down from an earlier measure of 2.9 per cent.

While growth slowed, Canada's economy still outpaced that of the United States, whose economy contracted to the tune of 1 per cent, annualized, in the first quarter.

The Statistics Canada measure came in below the expectations of economists, who had forecast a reading of up to 1.8 per cent.

On a monthly basis, the economy inched ahead by 0.1 per cent in March to cap the quarter.

Key to the slower growth was a slump in what is known as final domestic demand, or spending by consumers, government and business.

Over all, that contracted, marking the first pullback since the ugly days of the recession.

"Exports and imports both dropped, but the logjam in the U.S. due to adverse weather might have played a role there," said chief economist Avery Shenfeld of CIBC World Markets.

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"Over all, not a great quarter, with a soft finish in March boding something only slightly better in [the second quarter]."

Trade was hit, though a drop in imports far outpaced that of exports. Home construction, whacked by the bitter winter, also suffered, as did business investment.

The restraint climate among governments in the post-crisis era also hit home as spending dropped.

Consumer spending rose in the first quarter, but modestly.

This being Canada, it's worth noting that the entertainment sector took a big hit in the quarter – down 3.4 per cent – as the National Hockey League took a break for the Winter Olympics.

True to form, though, it bounced back by 5.6 per cent in March alone as professional hockey returned.

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The weaker first quarter, however, hasn't changed the 2014 outlook for some observers.

"True, domestic demand will remain under pressure as debt-laden households limit growth in consumption, housing softens, and government outlays are capped by tight fiscal policy," said senior economist Krishen Rangasam of National Bank.

"But business investment spending has potential to bounce back and provide an offset based on the increasing corporate profits in recent quarters," he added, projecting annual growth of 2.3 per cent.

"Trade should also improve over the rest of the year, in sync with an improving U.S. economy."

Friday's reading was a key one for the Bank of Canada heading into its policy meeting next week.

"The mild downside surprise for growth will likely keep the Bank of Canada focused on the downside risks at next week's meeting, even with the recent upswing in inflation," said chief economist Douglas Porter of BMO Nesbitt Burns.

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"The fact that the Canadian dollar has been steadily grinding stronger for the past two months – aside from a small stumble after today's data – is an added reason for the bank to continue sounding dovish."

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