Real gross domestic product edged down 0.1% in the first quarter of 2008, its first quarterly decline since the second quarter of 2003, Statistics Canada reported today.

Cutbacks in manufacturing, most notably in motor vehicles, coupled with weather disruptions, contributed to the weak first-quarter reading.

StatsCan said the economy had started to lose momentum in the second half of 2007 on declining exports.

Economists had been expected first quarter growth of 0.4%.

“This report was much weaker than expected by both the street and the Bank of Canada, which forecasted a 1% annual rate increase in output,” wrote RBC assistant chief economist Dawn Desjardins, in a morning commentary.

Economic output contracted 0.2% in March.

Final domestic demand advanced 0.6% in the quarter on the strength of consumer spending.

Inventory accumulation eased considerably in the first quarter, after two quarters of large build-ups.

Excluding the production of motor vehicles and its estimated ripple effects on other sectors such as motor vehicle parts, wholesaling and transportation, GDP for the remainder of the economy grew by 0.1% in the quarter.

The output of the goods-producing industries declined 1.5% in the first quarter, while the services-producing industries advanced 0.5%.

Declines in manufacturing, mining and some transportation industries were partially offset by increases in retail trade, accommodation services, and finance and insurance.

While the economy continued to create jobs in the first quarter, average hours worked declined. Inclement weather hindered average hours worked in some industries.

The Canadian economy declined at an annualized rate of 0.3% in the first quarter, compared with 0.9% growth for the U.S. economy.

Exports of goods and services fell for the third straight quarter, in line with the third consecutive decline in manufacturing output.

Jacqui Douglas,economics strategist at TD Securities said the output gap in Canada is now likely closed, which Canada’s central bank didn’t expect to happen for another quarter. “For anyone who was doubting that the Bank of Canada would cut rates again at its next FAD on June 10, today’s GDP report should erase any doubts, and confirm the markets’ expectations for a 25bps rate cut,” she wrote in a note.

Overall, she said the Bank of Canada “still has ample room to deliver further monetary stimulus to a sagging Canadian economy.”