Forest fires in Canada's oil sands region that disrupted production have pummeled the country's economy, sparking the biggest quarterly decline in GDP in seven years, according to government figures released Wednesday.

Gross domestic product fell at an annualized rate of 1.6 percent in the second quarter amid continued weakness in oil prices, said Statistics Canada.

It was the largest decline in quarterly GDP since 2009, but was only slightly bigger than analysts had forecast.

The government statistics agency pointed to a significant drop in oil production as 100,000 residents of Fort McMurray and nearby facilities in the heart of the Alberta oil sands region were evacuated in May to escape encroaching forest fires.

Oil output was reduced by an estimated 1.2 billion barrels per day at a time when Canada's economy was still adjusting to the 2014 rout that sent crude prices plunging from above $100 per barrel to below $50.

Manufacturers supplying industrial machinery to the oil sector were also affected.

Analysts said they were expecting a hit from the worst disaster in Canadian history, following warnings from the central bank. Canada is the world's sixth-largest oil producer.

Excluding oil and wildfire impacts, the Canadian economy actually grew slightly in the second quarter.

By comparison, the economy of the United States -- Canada's largest trading partner -- grew 1.2 percent in the same period.

Many observers, however, were surprised to also see a 4.5 percent drop in Canadian exports in the quarter.

"All in all, the economic decline is in line with expectations," Nomura bank economist Charles St-Arnaud told AFP. "But the downturn in exports came as a shock."

The across-the-board downturn in exports was also the worst since 2009.

Crude exports fell 10 percent while foreign sales of refined petroleum energy products dropped nearly 20 percent.

Exports of non-metallic minerals were also down 18 percent. A rebound in aircraft sales to foreign buyers was the only major offset to the slide.

- Better days ahead? -

Analysts agreed however that the worst appears to be over, and they expect a bump in the next quarter.

"Canadian GDP can be a roller-coaster ride, and the dip of 1.6 percent annualized in Q2 was certainly evidence of that," said Andrew Grantham of CIBC Economics.

"However, there were more than enough indications from today's figures that the underlying slope for the economy is still upwards," he said, predicting a "healthy lift is in store for Q3."

St-Arnaud also noted an uptick in domestic demand buried in the newly-released figures.

And National Bank senior economist Krishen Rangasamy noted that the economic forces that led to softer US demand for Canadian goods "are now dissipating."

Household expenditures, according to Statistics Canada, continued to rise in the second quarter. Government outlays also increased for a sixth consecutive quarter.

Overall business investment edged down.

On a quarterly basis, real gross domestic product decreased 0.4 percent in the second quarter, after increasing 0.6 percent in the first quarter.

At its peak, the Alberta blaze covered more than 500,000 hectares (1.2 million acres) of dense forest in northern Alberta.

Restoration of Fort McMurray continues. Thirty-nine more families returned home on Wednesday and officials said they aim to have all residents back by the end of September.