US Slips Down the Ranks of Global Competitiveness

The United States has slipped further down a global ranking of the world's most competitive economies, according to a World Economic Forum survey. The US has fell for the fourth year in a row. The lack of macroeconomic stability, concerns over fiscal health and the community's mistrust of government have all led to this downgrade.

By: Ansuya Harjani
Published: Wednesday, 5 Sep 2012

The United States has slipped further down a global ranking of the world's most competitive economies, according to a World Economic Forum (WEF) survey released on Wednesday.

The world's largest economy, which was placed 5th last year, fell two positions to the 7th spot - marking its fourth year of decline.

A lack of macroeconomic stability, the business community’s continued mistrust of the government and concerns over its fiscal health were some of the reasons for the downgrade, according to the annual survey.

"A number of weaknesses are chipping away at its competitiveness...the U.S. fiscal imbalances and continued political deadlock over resolving these challenges," said Jennifer Blanke, Economist at the Geneva-based WEF.

Political deadlock over reducing the unsustainable federal government budget deficit – projected to hit $1.1 trillion this year – prompted Standard & Poor’s to downgrade the country’s credit rating by one notch to AA+ from AAA last August.

A mix of U.S. tax hikes and spending cuts – referred to as the "fiscal cliff" - are set to come into force in January unless lawmakers reach a compromise for avoiding them.

The survey, which has been conducted annually for over three decades, ranks the competitiveness of 144 countries based on 12 key indicators including infrastructure, macroeconomic environment, labor market efficiency and innovation.

“If you look at competitiveness, what we are talking about is productivity. It’s countries that are productive that can support the sorts of rising living standards and high wages that everyone is looking for,” Blanke told CNBC.

Despite declining in the overall ranking, the forum highlighted that the U.S. remains one of the world’s top innovators – supported by an “excellent” university system - and continues to offer vast opportunities because of the sheer size of its domestic economy.

Switzerland and Singapore retained their positions as the most competitive economies, coming in 1st and 2nd, respectively.

Switzerland’s top spot was achieved as a result of its strong performance across the board, according to WEF, with notable labor market efficiency, sophistication of its business sector and its innovative capacity. The country has among the highest rates of patents per capita globally.

“Switzerland’s productivity is further enhanced by a business sector that offers excellent on-the-job-training opportunities and labor markets that balance employee protection with the interests of employers,” the report said.

China Tops the BRICs

Among the large emerging economies, China was ranked highest at 26, thanks to favorable macroeconomic conditions. This was significantly higher than Brazil, India and Russia which came in at 53, 56 and 66, respectively.

China runs a moderate budget deficit, boasts a low government debt-to-GDP ratio of 26 percent and its gross savings rate remains above 50 percent of GDP, the forum said. In addition, the rating of its sovereign debt (AA-) is significantly better than that of the other BRICs and of many advanced economies.

However, the world’s second largest economy has slipped two notches from last year’s ranking, owing to a deterioration in the development of its financial markets and technological readiness.

“Insufficient domestic and foreign competition is of particular concern, as the various barriers to entry appear to be more prevalent and more important than in previous years,” WEF report said.

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