TORONTO — After a challenging year, the economy is set for a recovery in 2010, according to a new forecast by RBC Economics.

It says although the economy contracted at an average of 2.5 per cent this year, the stage is set for positive growth in 2010.

RBC predicts real gross domestic product will rise by 2.6 per cent next and will continue to expand in 2011, at a 3.9 per cent clip.

The report suggests the peak of stimulus spending will occur in 2010, with improving credit conditions fuelling growth next year and in 2011.

In addition, consumer spending is projected to increase by 2.3 per cent next year before accelerating to 2.7 per cent in 2011.

However, the bank says the jobless rate is expected to remain high at about 8.7 per cent in 2010 before falling to 7.8 per cent in 2011.

"With the financial crisis behind us and the U.S. economy on the mend, Canada's economic growth is expected to rise steadily throughout the next year," said Craig Wright, RBC senior vice-president and chief economist.

"While challenges remain, a peak in stimulus and infrastructure spending across the federal, provincial and municipal governments, along with low interest rates, should result in a sustained recovery."