A new forecast from RBC Economics says an economic recovery is "solidly taking root in Canada" and predicts that Canada's economy will see real GDP growth of 3.1 per cent this year.

RBC chief economist Craig Wright also predicts GDP growth of 3.9 per cent in 2011.

He says a recovery in consumer spending, improved credit markets, continuing low interest rates and a peak in stimulus investment are fuelling the growth.

"Going forward, additional growth should be sustained by strength in the housing market and investment by the private sector, as corporations increase payrolls and investment," Wright said in a Thursday news release.

RBC adds consumer spending is expected to expand next year by 2.8 per cent and business investment by more than 7 per cent.

On the jobs front, the bank says stability in the auto sector and rising commodity prices should spur a gradual improvement. The report predicts unemployment rates will average 8.4 per cent in 2010, before falling to 7.7 per cent in 2011.

The report also predicts a strong recovery in the housing market, which will slow somewhat by the fall.

"The housing market should remain strong as improved labour conditions and low mortgage rates fuel demand," added Wright. "We expect the market to slow by the second half of the year as interest rates begin to rise and affordability declines."

Among the provinces, RBC expects a 4.1 GDP growth rate in Newfoundland and Labrador, 3.6 per cent in Saskatchewan, 3.4 per cent in B.C. Alberta's growth rate is expected to be just 2.5 per cent this year, but grow by 4.4 per cent in 2011.

The report predicts that Canada's biggest provincial economy, Ontario, will see growth increase by 3.3 per cent in 2010 and 4.1 per cent in 2011.

"Challenges are still on the horizon this year with the strong Canadian dollar limiting U.S. demand for Ontario's exports, the automotive sector susceptible to more turbulence and the provincial job market taking time to recover," added Wright.

"Nonetheless, economic prospects should improve throughout this year and next as more industries and sectors move into recovery mode."