U.S. Displaced by Switzerland as Most Competitive

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 skennedy4@bloomberg.net