Canada's central bank says the Canadian economy will shrink and become much weaker than expected because of Alberta's devastating wildfires, which shut down its oil sands production.

The Bank of Canada, which kept its key interest rate on hold Wednesday, said its preliminary assessment is that the destruction and halt to oil production will knock about 1 1/4 percentage points off real GDP growth in the second quarter. In April, the bank had forecast 1 percent growth in the quarter.

The bank expects the economy to rebound in the third quarter as production resumes.

Officials hope to start a phased in return of 80,000 evacuees to the main oil sands city of Fort McMurray starting June 1. The Alberta oil sands have the third-largest reserves of oil in the world.