The USA is Back on the Global Competitiveness Podium

Of course, every top athlete strives to be #1 in the world. But at events like the Olympic Games, athletes still get recognized if they make it “on the podium.”

Even if an athlete doesn’t get the gold, a silver or bronze medal is an achievement worthy of his country’s celebration.

The same applies to the world of global economic competition.

Each September, the Davos-based World Economic Forum holds the equivalent of the Olympic Games for global economies. Although the forum doesn’t host an actual competition, it does calculate and present its annual ranking of countries via the Global Competitiveness Report.

The U.S. Economy: Back in the Top Three

This year’s results were a watershed for the United States. Uncle Sam made it back on the podium when he grabbed the No. 3 spot on the listing of the most competitive economies.

That’s two slots higher than its showing last year, and up four spots since 2012.

So, what does the Global Competitiveness Report measure, and what are the key takeaways from this year’s report?

The economists at the World Economic Forum rank the world’s 144 economies based on what it calls 12 pillars — institutions, infrastructure, macroeconomics, health and primary education, goods and market efficiency, higher education and training, labor market efficiency, technological readiness, financial market development, market size, business sophistication and innovation.

Before its rebound over the past two years, the recent showing for the United States has been more like that of an aging athlete than a nimble competitor for the title of the world’s best.

The United States had owned the top spot on the podium in 2008. But just four years later it had tumbled to a lowly seventh place. The global financial crisis, the housing crash of 2008 and four consecutive years of $1 trillion-plus deficits reduced what was once the most competitive economy in the world into an also-ran.

Yet as I wrote last year in The Global Guru, the U.S. economy just may be cementing its place as the global economy’s “comeback kid,” a nickname confirmed yet again by this year’s return to the podium. As for the two top spots, they stayed the same as last year. Singapore was in second place and Switzerland once again earned top honors for the sixth consecutive year.

As the striking Air France pilots who have disrupted air traffic over the skies of Europe over this past week would say:

Plus ça change, plus c’est la même chose.

You can download the full rankings by clicking here.

The Global Economy: Caution Ahead

This year’s competitiveness report has a distinctly cautionary tone.

On the one hand, “the global economy seems to be finally leaving behind the worst and longest-lasting financial and economic crisis of the last 80 years.”

On the other, the report concedes “this resurgence is moving at a less decisive pace than it has after previous downturns, and heightened risks looming on the horizon could derail the global recovery.”

The World Economic Forum highlights the crucial role of central banks flooding the global economy with liquidity — and it is clearly cautious about this policy’s potential long-term negative impact.

As the report notes, “Much of the growth in recent years has taken place because of the extraordinary and bold monetary policies in countries such as the United States, Japan and the United Kingdom. As the economy improves in these countries, a normalization of monetary policy with tightening financial conditions could have an impact on both advanced and emerging economies.”

Could the World Economic Forum be hoisting a caution flag on the end of quantitative easing in the United States, as well as the likelihood of rising interest rates by mid-2015?

The authors of the report seem to be waiting for the other shoe to drop.

Global Trends in Competitiveness

Last year, I wrote about one trend in the global economy that’s been transformative over the past dozen years: the rise of Asia.

That trend continues to be reflected in this year’s competitiveness rankings, with Singapore holding steady at #2, while Malaysia jumped four sports to #20 from #24. Smaller Asian economies such as Thailand and Vietnam also continued to move up the rankings.

Of course, China is the Asian economy that everyone is watching right now.

There, the news is mixed.

China’s economy will likely surpass the United States’ as the world’s largest economy by next year — at least in terms of purchasing power parity (PPP).

But with China’s economy just moving up one slot to #28 from #29 this year, China has a long way to go before it challenges the United States in terms of global competitiveness.

So, will China continue to creep up the ranks next year, and will the rise of Asia continue? Will the United States stay on the podium, and perhaps even unseat Switzerland for the top spot for the first time since 2008?

Time will tell.

And I’ll be tuning in to watch next year’s competition closely along with the rest of the world.

In case you missed it, I encourage you to read my e-letter column from last week about the rise and fall of emerging markets. I also invite you to comment in the space provided below.