The United States fell to sixth place in the World Economic Forum's 2006 global competitiveness rankings, ceding the top place to Switzerland, as macroeconomic concerns eroded prospects for the world's largest economy.
In a report released on Tuesday, the World Economic Forum said Washington's huge defense and homeland security spending commitments, plans to lower taxes further, and long-term potential costs from health care and pensions were creating worrisome fiscal strains.
With a low savings rate, record-high current account deficits and a worsening of the U.S. net debtor position, there is a non-negligible risk to both the country's overall competitiveness and, given the relative size of the U.S. economy, the future of the global economy, it said.
Switzerland was deemed the most competitive economy in 2006, followed by Finland, Sweden, Denmark and Singapore. After the United States, which had topped the 2005 index, Japan, Germany, the Netherlands and Britain rounded out the top 10.
The Geneva-based World Economic Forum said Switzerland's well developed infrastructure, plentiful scientific research, intellectual property protection and sophisticated business culture helped launch the country to the index's leading position.
As in Switzerland, it said high-ranking Nordic countries benefited from strong institutions and excellent education and training, but said they lagged in labor market flexibility.
Most European Union countries saw stable competitiveness readings over the past year, but Italy's competitiveness ranking fell to 42nd, compared to 38th last year, because of ongoing macroeconomic and institutional weakness.
RUSSIA, CHINA SLIP
Russia slipped nine places for a 62nd-place ranking this year, largely due to private sector misgivings about the independence of the country's judiciary, according to the report based on surveys of more than 11,000 business leaders worldwide.
Legal redress is Russia is neither expeditious, transparent nor inexpensive, unlike in the world's most competitive economies, it said. Partly because of this, the property rights regime is extremely poor and worsening.
China's ranking also fell, to 54 from last year's 48.
The report said China had a mixed performance this year as fast growth, low inflation and high savings rates were muted by banking weakness concerns, poor penetration rates for mobile phones, computers and other technology, and low secondary and tertiary school enrollment rates.
Fellow Asian powerhouse India gained two places to rank 43rd in the World Economic Forum ranking, with persistent poverty, weak health infrastructure and a large public sector deficit offsetting advances in technological services.
Chile, ranked 27, led Latin America's showing in the 2006 index while Brazil slipped nine places to 66th as a result of a worryingly large budget deficit, the report said.
Regional neighbors Bolivia, Ecuador, Nicaragua and Paraguay ranked much lower and were listed as among the worst performers for basic elements of good governance, including reasonably transparent and open institutions.
Venezuela slipped four places to 88 despite the emergence of a budget surplus in the oil exporter. The World Economic Forum said the OPEC member needed stronger institutions to fight graft and reduce government interference in the economy.
In the Middle East, oil price gains have improved business confidence in countries such as the United Arab Emirates and Qatar, ranked 32nd and 38th. The report said more investments in human capital would help the energy-dominated region diversify its economies and further improve its competitive prospects.