Various Canadian GDP forecasts

Economists at Royal Bank of Canada say the economy will likely contract by 2.4 per cent for 2009, although they see a recovery taking hold later this year.

The bank's economists said the overall decline this year is partly due to the 5.4 per cent annualized contraction in real gross domestic product in the first quarter. The bank said that will likely be the worst performance of the recession, although they believe the economy will remain in recession for the second quarter, which concludes at the end of June.

"Improving global growth prospects, alongside extraordinarily low interest rates and government stimulus, are expected to allow Canada to return to positive growth in 2009, with a moderate recovery in 2010," said Craig Wright, senior vice-president and chief economist at RBC.

The bank said signs of improvement are showing up in the U.S. housing market and that consumer confidence is improving, buoyed by low interest rates, easing credit conditions and the U.S. government's stimulus package.

"The benefits of significant fiscal and monetary policy stimulus are starting to have traction," Wright said.

"There is an unprecedented amount of money bolstering the world economy. What we will be watching is the impact this spending has on labour markets, as well as household and business confidence. The degree of impact will be a crucial factor in shaping economic recovery."

Over the weekend, the Group of Eight major industrialized countries said they too are seeing signs of economic stabilization, and that they are looking at ways to wind up their large stimulus packages.