The world’s top 10 most competitive economies

The Global Competitiveness Report 2015-2016 assesses the competitiveness of 140 world economies. Using a mixture of quantitative and survey data, it ranks countries overall by combining 113 indicators grouped under 12 pillars of competitiveness: institutions; infrastructure; macroeconomic environment; health and primary education; higher education and training; goods market efficiency; labour market efficiency; financial market development; technological readiness; market size; business sophistication; and innovation.

Switzerland tops the Global Competitiveness Index for the seventh year in a row. It leads the world in its capacity to innovate and scores highly for its education system and labour market efficiency. Switzerland’s infrastructure is strong, its public institutions are effective and transparent, and its macroeconomic environment is more stable than most. Still, the cost of doing business in Switzerland is high – and its strong currency, negative real interest rates and uncertainty about future immigration policy are all cautions against complacency.

Singapore beats everyone but Switzerland for the fifth consecutive year. Its competitiveness is broad-based – it scores in the top 10 in nine out of the 12 pillars. Its particular strengths are the efficiency of its goods, labour and financial markets and the quality of its higher education and training system. It also scores strongly for its infrastructure, macroeconomic stability and the transparency and efficiency of institutions. Areas for improvement include a relatively low rate of participation of women in the workforce.

The United States holds steady in third place. The foundations for its competitiveness include human capital, sophisticated businesses and capacity for innovation, with high levels of spending on research and development and good collaboration between the private sector and academia. It has improved in the last year on measures of government efficiency and the soundness of its financial markets – but the expected phase-out of accommodative monetary policy will test improvements in macroeconomic stability. The US must also avoid complacency on education – the country ranks 18^th for quality of education and improvements are required for the nation to remain a talent-driven economy.

Germany is the first mover in this year’s index, climbing one place to fourth thanks in part to improvements in its macroeconomic environment. It has also advanced on the efficiency of financial markets and the labour market – although its low score on labour market flexibility indicates that there is still considerable scope to bolster competitiveness here through further reforms. Germany’s competitive strengths include its highly sophisticated businesses, excellent on-the-job training, rapid uptake of new technologies and supportive research environment.

The Netherlands climbs three places to fifth, regaining its highest-ever position in the index on the back of small improvements across a wide range of indicators. Its strongest scores come in areas including education, infrastructure, institutions, business sophistication and innovation; its weaknesses include inflexibilities in the labour market and continuing doubts about its financial markets. Its score on financial market development is still significantly lower than in 2007, before the global financial crisis and the bursting of the Netherlands’ real estate bubble.

Japan remains in sixth place. Its competitiveness is founded on excellent infrastructure, a healthy workforce and a strong ecosystem for innovation thanks to sophisticated businesses, early adoption of new technologies and high-quality research institutions. Its macroeconomic environment scores more highly than a year ago, due in part to the return of moderate inflation. Japan’s continuing areas of relative weakness include human capital, with a low rate of female participation in the labour force showing that the country is failing to use its talent efficiently.

Hong Kong SAR places seventh for the third consecutive year, with a performance almost unchanged from last year and showing a good degree of consistency across the 12 pillars. Its particular strengths include its well-developed financial sector, transport infrastructure and dynamic goods and labour markets. Innovation is among the pillars of competitiveness on which it performs relatively less well, with business leaders citing Hong Kong’s capacity to innovate as their biggest concern.

Finland drops to eighth from fourth last year, having been third for the two previous years. With unemployment at 9.5%, GDP still 6% lower in 2014 than in 2008, and growing public deficit and debt, Finland’s macroeconomic situation gives some cause for concern. However, it still beats many other advanced economies and the country retains some strong fundamentals: its public institutions are rated as the most transparent and efficient in the world; its higher education and training system is excellent; and it has a strong capacity for innovation.

Sweden overtakes the United Kingdom to claim ninth place, with its competitiveness based on its efficient and transparent institutions, excellent education system, sophisticated businesses and an innovation ecosystem that benefits from high levels of technological adoption. Among the country’s remaining weak spots are overly restrictive labour regulations and tax rate on profits that, while it has decreased in recent years, remains high by international standards.

The United Kingdom slips one place to 10th, despite improving its performance in many areas. Its strengths include solid institutions and some of the best universities in the world. The country’s weak spots include its macroeconomic environment, with high government deficits meaning the public debt has doubled since 2007. The UK’s financial market is still recovering from the crisis, but remains one of the best developed in the world.

The Global Competitiveness Report 2015-2016 is available here. 

Author: Margareta Drzeniek-Hanouz is Head of Global Competitiveness and Risks at the World Economic Forum

Image: A Swiss flag on the Federal Palace (Bundeshaus) is pictured next to a crane in Bern February 12, 2014. REUTERS/Thomas Hodel