RBC chief economist Frances Donald has revised Canada's economic outlook upward, indicating that the economy is proving to be more resilient than previously anticipated.

A significant trade agreement with the U.S. and Mexico is helping to shield a large portion of Canadian exports from tariffs, which contributes to a more favorable trade environment.

Donald attributes her positive outlook to five key factors: manageable tariff burdens, unexpected consumer spending, potential for interest rate cuts, substantial government spending plans, and a strong U.S. economy.

Initially, Trump's tariffs sparked widespread panic, leading to retaliatory measures from Canada and fears of a recession, with many economists predicting minimal growth or an economic downturn.

RBC now anticipates that the Bank of Canada will maintain interest rates for the rest of 2025, a decision influenced by the better-than-expected economic performance amid ongoing tariff threats from the U.S.

Despite facing challenges such as a 7 percent unemployment rate—the highest in nine years—Donald believes Canada's economic situation may be more favorable than it appears.

Since joining RBC last summer, Donald has accurately predicted a half-point rate cut by the Bank of Canada, which diverged from the usual quarter-point adjustments.

She emphasizes that, despite the prevailing narrative focusing on downside risks, Canada's economic trajectory appears less daunting than it did a few months ago.

Contrary to negative forecasts from various firms, Donald points out that Canadians' actual spending behaviors contradict their low consumer confidence, showcasing resilience.

RBC forecasts a 1.5 percent growth in GDP for 2025, matching the growth rate of 2024, which is more optimistic than earlier predictions due to evolving circumstances under President Trump.

RBC's analysis reveals an increase in household net worth and business investments in machinery, highlighting underlying economic strength despite the challenges posed by tariffs.