US no longer world's most competitive nation

Lefteris Pitarakis/Pool/Reuters
Meeting in London this past weekend, financial officials of the G-20 group of advanced and emerging nations posed for a photo, including (left to right): US Treasury Secretary Timothy Geithner, China's finance minister Xie Xuren, Britain's Chancellor of the Exchequer Alistair Darling, Canada's finance minister Jim Flaherty, and French finance minister Christine Lagarde. The economic crisis is helping the growth prospects of China and Canada but hurting those of the US, Britain, and France, a new report finds.

The global financial crisis is damaging the medium- and long-term growth prospects of many nations.

It has knocked the United States from its perch as the world's most competitive economy (it's now No. 2, right behind Switzerland), according to the World Economic Forum's global competitiveness report released Tuesday. It has dimmed the outlook for all but a handful of countries. And it has created a fissure in the bloc of big emerging-market countries known as the "BRIC" nations.

The global economic downturn was a big reason for the US losing its top spot to Switzerland in this year's report, which measured a broad range of factors affecting an economy’s business climate. Not surprisingly, confidence in its financial institutions and its auditing and accounting standards deteriorated in the wake of the crisis. America's increased borrowing to fund its stimulus programs has also provoked concerns about its long-term debt. Its rating for macroeconomic stability, which assesses nations' debt loads among other things, tumbled to 93 this year, behind Mexico (28), Panama (46), and Uganda (73).

"It looks like one of the main consequences of the current financial crisis has been massive [US] government intervention that will leave huge macroeconomic imbalances, especially big, big, big budget deficits," said Xavier Sala-i-Martin, a Columbia University economist and author of the report, in a video released with the index.

The downturn also hurt medium- and long-term growth prospects for almost all countries, with the notable exceptions of Brazil, India, China, Australia, and Canada, according to the World Economic Forum's survey of leading economists.

The first three nations are members of the BRIC – Brazil, India, and China – whose large domestic markets and solid rankings on education, healthcare, training, and labor efficiency helped insulate them from the slump. All three nations improved their positions from last year's competitiveness index. In contrast, Russia, the other member of the BRIC, fell 12 places in the rankings and now lags the first three by a considerable margin – 63 vs. 29 (China), 49 (India), and 56 (Brazil). (Click on chart above.)

"Perhaps this is the begininng of a trend that we will see in terms of divergence, based on the kinds of reforms that these countries have been putting in place," said Jennifer Blanke, a senior economist with the forum, in a separate video.

Government reforms – in the form of government debt-reduction – also helped improve the outlook for Australia and Canada, the report found.
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