Top 10 most competitive economies in Europe

Economic recovery across Europe is mixed, with many countries now recording stronger growth, while others continue to suffer from weak growth driven by protracted internal demand, high unemployment and financial fragmentation.

According to the latest edition of the World Economic Forum’s Global Competitiveness Report, six European countries are ranked among the global top 10 most competitive economies. However, many countries in Southern and Central and Eastern Europe ranked poorly, highlighting the persistent divide between Northern Europe and the less competitive south and eastern markets.

A new divide also seems to be forming, between countries that are making the reforms needed to become more competitive, and those that are not posting much progress.

The report ranks 144 economies according to 12 key measures that influence competitiveness, including infrastructure, education and innovation. These are the top 10 performers in the region:

1. Switzerland tops the report’s Global Competitiveness Index (GCI) for the sixth year running. It performs well across many of the measures being assessed and ranks in the top 10 of eight key pillars. Switzerland’s top-notch academic institutions, high spending on R&D, and strong cooperation between the academic and business worlds contribute to making it a top innovator. The sophistication of companies operating at the highest end of the value chain is another notable strength. Productivity is further enhanced by a superb education system and a business sector that offers excellent on-the-job-training opportunities. Public institutions are among the most effective and transparent in the world. There is excellent infrastructure and connectivity, and highly developed financial markets. Switzerland’s macroeconomic environment is among the most stable in the world. A potential threat to its competitive edge might be the growing difficulty in finding talent to fuel continued innovation.

2. Finland continues to perform strongly across all the sectors measured by the index, despite its drop of one place to fourth position in the world, which is largely due to a slight deterioration of its macroeconomic conditions. Finland suffers from a high but manageable deficit and public debt, yet continues to boast well-functioning and highly transparent public institutions, and high-quality infrastructure. The country manages to use its existing talent efficiently, despite some persistent rigidities in its labour market, most notably in terms of wage determination – one of the most problematic factors for businesses. Its biggest competitiveness strength lies in its capacity to innovate, in which the country leads the world. It has high rates of public and private investment in R&D, strong links between universities and industry, and an excellent education system.

3. Germany drops one place to fifth position in the global rankings this year due to concerns about institutions and infrastructure that are only partially balanced out by improvements in the country’s macroeconomic environment and financial development. Germany’s main competitiveness strengths include highly sophisticated businesses and an innovation ecosystem that is conducive to high levels of R&D innovation, complemented by high-quality infrastructure and excellent on-the-job training, ensuring technical skills match the needs of business. Labour market efficiency has improved markedly in recent years, but the recent introduction of a minimum wage could reverse this trend. In light of declining population growth, a more holistic approach to immigration and more incentives for women to remain in the labour market will be crucial to ensuring the supply of talent.

4. As in the last edition, the Netherlands retains its eighth place in the world this year. It has an excellent education and training system, is a strong adopter of technology and shows tremendous capacity to innovate, allowing businesses there to compete at the very high end of international value chains. The Netherlands also boasts highly efficient institutions and world-class infrastructure. The country’s performance in the rankings is somewhat hindered by rigidities in the labour market, especially in respect to hiring and firing, and by weakness in the Dutch financial system, a result of a housing bubble, which has made it harder to access credit.

5. The United Kingdom climbs one spot to ninth place in the global rankings, thanks to lower levels of fiscal deficit and public debt. The country continues to benefit from an efficient labour market and a high level of financial development, despite the recent difficulties in parts of its banking system and problems for businesses accessing loans. It has strong ICT take-up and a large, highly competitive market, which allows sophisticated and innovative businesses to spring up. In addition to continuing to improve its macroeconomic conditions, the country should look into improving education, particularly in mathematics and science, which are crucial to continued innovation.

6. Sweden,despite steady results across all measurement areas, falls four places this year to 10th place in the global rankings. The country boasts strong institutions that are regarded as transparent and efficient; it has excellent infrastructure and healthy macroeconomic conditions that include low levels of fiscal deficit and public debt, allowing the country to maintain its triple-A rating throughout the recent financial and economic crisis. Sweden has managed to create the right set of conditions for innovation. It scores well on the index for education and training, ICT adoption is among the highest in the world, and the country is home to highly competitive markets. Sweden should, however, address labour market regulations and its high taxation system, which can be problematic for businesses.

7. Norway again achieves 11th place in the global rankings, with a stable macroeconomic environment, strong institutions, high technological readiness and excellent higher education and training. Norway attains the strongest social sustainability performance of all the countries in the study, balancing low inequality and social protection with high mobility and low levels of unemployment. Norway is making efforts to reduce its impact on its natural capital, but needs to work towards more sustainable management of its declining fish stocks and forests.

8. In Denmark, competitiveness is improving due to more favourable macroeconomic conditions and a lift in the assessment of the functioning of its institutions and financial markets. The country has a well-functioning and highly transparent institutional framework, and first-rate higher education and training, which provide a workforce that can adapt rapidly to a changing environment and has laid the ground for high levels of technological adoption and innovation. In marked difference from the other Nordic countries, Denmark has one of the most efficient labour markets internationally, with flexible regulations, strong labour-employer relations and a high proportion of women in the workforce.

9. Belgium has slightly improved its competitiveness thanks to a better macroeconomic performance with a lower public deficit, which remains below 3% of its GDP. It has an outstanding education and training system, excellent management schools, a high level of technological adoption and highly sophisticated and innovative businesses that carry out their activities in a market characterized by high competition and an environment that facilitates new business creation. There are, however, concerns about government efficiency, its regulatory burden, tax system and high public debt.

10. Luxembourg, with a population of just 500,000, has a much higher GDP per capita than the average for advanced economies. It benefits from a healthy macroeconomic situation, strong institutions, good infrastructure and a high degree of technological readiness. However, it performs slightly less well than for similarly advanced markets in its provision of higher education and training. Restrictive labour regulations are seen as the greatest problem for businesses operating in the country.

Read the Global Competitiveness Report 2014-15.

See how well different countries perform on our latest Global Competitiveness Index:

Author: Margareta Drzeniek, Director, Lead Economist, Head of Global Competitiveness Risks, World Economic Forum

Image: A closeup of the map of Europe seen on the face of a 10 Euro Cent coin in Paris, February 15, 2012. REUTERS/Mal Langsdon