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Press

U.S. Displaced by
Switzerland as Most Competitive (Update1)

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By Simon Kennedy and Klaus Wille

Sept. 8 (Bloomberg) -- The U.S. was displaced by Switzerland as
the world’s most-competitive economy after its financial markets
were roiled by the worst crises since the Great Depression, the World Economic Forum said today.

The U.S. fell to second position for the first time since the
Geneva-based organization began its current index in 2004 as it lost
marks for the sophistication of its markets and rising budget
deficits. Switzerland was credited for its stability and ability to
innovate.

“A number of escalating weaknesses have taken their toll on the
U.S. ranking this year,” the study of 133 countries ny the
Geneva-based organization said. “Switzerland’s performance has
remained relatively stable.”

The loss of efficiency by the world’s largest economy is another
obstacle to a fast recovery even as it begins to show signs of
emerging from its deepest recession since World War II.

Reduced confidence in its banking system after the collapse a
year ago of Lehman Brothers Holdings Inc. meant the U.S. slid to
ninth from 20th when ranked for the attributes of its markets. A
measure of how easy access to finance is fell to 106th this year,
close to Albania and Mali, from 40th last year, while a budget
deficit now above $1 trillion pushed its grade for economic
stability to 93rd from 66th.

U.S. Faces Obstacles

The U.S. economy still won marks for its flexible product and
labor markets, research and development and technological advances.
‘These factors remain a driving force behind U.S. productivity and
will support recovery from the current recession,” the forum said.

The U.S. economy may be slow to pull out of its slump as data
suggest obstacles to expansion remain. While the economy lost the
fewest jobs this year in August, unemployment
climbed to a 26-year high, a U.S. Labor Department report showed
Sept. 5.

Switzerland took the top spot after being ranked third in the
world for business sophistication and second for its capacity to
innovate. Its economy was ranked 17th for stability.

Recent indicators show the Swiss economy is emerging from its
worst recession in three decades. Gross domestic product contracted
0.3 percent in the second quarter from the previous three months,
less than economists expected. Exports rose in July after falling
for two months and investor confidence jumped to a three-year high
in August.

Returning to Growth

“Some months ago, uncertainty was much higher and I expected
worse” said Ursina
Kubli, an economist at Bank Sarasin in Zurich. “But given these
latest data, it looks as if the economy is stabilizing on a solid
level. I expect the economy to expand again in the third quarter.”

Singapore, Sweden and Denmark rounded out the top five, followed
by Finland, Germany, Japan, Canada and the Netherlands. Among the
other Group of Seven nations, the U.K. slipped one slot to 13th,
France held at 16th and Italy rose a place to 48th, although
remained below Barbados in 44th.

China climbed one place to 29th, while India and Brazil also
gained to 49th and 56th respectively. Russia fell 12 places to 63th
because of concern about the government’s growing role in its
economy and the independence of its justice system. In Latin
America, Chile was the highest placed ranking 30th and Qatar
outpaced its Middle East counterparts coming in at 22nd.

Governments should be wary of not taking steps to fortify their
economies even once the crisis passes, said Xavier
Sala-i- Martin, an economics professor at Columbia University in
New York, who helped write the report. The International Monetary
Fund now expects the world economy to grow 2.9 percent next year
rather than 2.5 percent it predicted in July.

“It is critical that policy makers not lose sight of long- term
competitiveness fundamentals amid short-term urgencies,” said
Sala-i-Martin. “A competitiveness-supporting economic environment
can help national economies to weather business cycle downturns.”

To contact the reporters on this story: Simon
Kennedy in Paris at [email-masked]

Last Updated: September 8, 2009 05:44 EDT

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