The Canadian Press

The investment world is knocking on Canada’s door and the rapping will only get louder as sovereign debt issues in Europe and the United States escalate, according to a new bank report.

CIBC World Markets says Canada is increasingly being recognized as a “safe harbour” from the debt crisis engulfing southern Europe and one which some fear could spread to the United States.

“It’s a case of the country never having looked so good by comparison,” said the bank’s global strategist, Warren Lovely.

“Before the crisis hit in 2008-09, Canada already stood out in terms of our fiscal position, and the simple matter is that our edge will continue to grow in the years ahead.”

Despite a massive $56-billion deficit this year, Ottawa has the Group of Seven’s best fiscal position by far. National debt stands at 35% of the economy, the country has sound banks and a solid AAA credit rating, and there are expectations it will lead its peers in growth over the next few years.

Add another important edge — one that may surprise people both inside and outside the country — is that Canada is primed to become a low-tax zone for business with a combined federal-provincial corporate rate of 25% after 2012.

The pay-off, says Lovely, is that foreign investors will be increasingly attracted to Canada because of its stronger economic prospects and a currency likely to appreciate rather than depreciate.

The loonie had a strong day Thursday, closing up 1.06¢ at US95.13¢, while the Toronto stock exchange gained 149.16 points.

Lovely points out that Canada’s advantage is already showing up in the statistics.

In November, the last month for which data is available, foreign investment in Canadian securities topped $10 billion, four times the level of Canadian investment in foreign markets.

Demand for Canadian government bonds is also hot. Ottawa was able to quickly raise two billion euros (C$2.87 billion) through a global 10-year bond issue last month. The government said buyers included central banks, other official institutions, commercial banks and foreign-based investment funds.

C.D. Howe economist Finn Poschmann cautions that Canada still has significant problems.

The federal government is slated to add at least $170 billion to the national debt, and the provincial debt overhang is even heavier. Meanwhile, the aging population means there will be fewer workers paying taxes to service the debt.

And while the consensus is that Canada’s economy will advance by about 2.7% this year and 3.5% next year, that is still low by historic standards coming out of a recession.

But it’s all relative. Ottawa’s debt compared with the size of the economy is lower than almost all European countries, half that of the U.S. and one-third of indebted countries such as Greece, Italy and Japan, which owe as much as their economies produce in a year.

Canada was in that boat in the 1990s and suffered the consequences in lower economic activity, higher taxes and reduced government services, such as cuts to health care and lengthened waiting times.

“It’s a lot more fun to being an attractive climate for investment and employment and job growth than being on the other side of it,” noted Poschmann. “There’s lots of good reasons out there to be bullish on Canada.”

If there’s a trouble spot on the horizon, it’s the export sector, particularly in manufactured goods.

In a new report, the Conference Board of Canada said Thursday that the country needs to retool its trade strategy, noting that the exports sector was largely flat even before the recession chopped 15% in 2009. Canada-U.S. trade has basically peaked, it adds.

Canada could do much better by taking steps to improve productivity, thinking globally and by removing restrictions to foreign investment, the think-tank said.