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Singapore, Hong Kong and the US top the IMD’s World Competitiveness rankings for 2010; Malaysia in 10th place and Ireland slips two ranks to 21st
By Finfacts Team
May 20, 2010 - 8:47:59 AM
Singapore, Hong Kong and the US top the IMD’s World Competitiveness Yearbook rankings for 2010. Malaysia is in 10th place and Ireland slips two ranks to 21st
In the first 10 places: Australia (5), Taiwan (8) and Malaysia (10) also benefit from strong demand in Asia. Switzerland (4) maintains an excellent position characterized by strong economic fundamentals (very low deficit, debt, inflation and unemployment) and a well-defended position on export markets. Sweden (6) and Norway (9) shine for the Nordic model, although Denmark (13) surprisingly loses ground, in particular due to the pessimistic mood expressed in the survey.
Not surprisingly Germany (16) leads the larger “traditional” economies such as the UK (22), France (24), Japan (27) and Italy (40). Despite a significant budget deficit and growing debt, Germany’s performance is driven by strong trade (second largest exporter of manufactured goods), excellent infrastructure, and a sound financial reputation. It was also to be expected that China (18) would lead the other BRIC (Brazil, Russia, India, China) nations, followed by India (31), Brazil (38) and Russia (51). And of course the credit-worthiness storm that affects Southern Europe acts as a drag on the performance of Spain (36), Portugal (37) and Greece (46).
The Debt Stress Test
The largest “old” industrialized nations – from Japan to the UK - - will all suffer a debt curse, in the worst case lasting until 2084. Nowadays, budget deficits are soaring and it is estimated that the average debt of the G20 nations, for example, will climb from 76% of their combined GDP ( gross domestic product) in 2007 to 106% in 2010. Although the Great Recession is over, the consequences of the crisis will continue to be felt for quite some time.
The quality of debt depends both on the collateral and the capacity to repay. In short, countries such as Greece, Portugal and Spain have a credibility problem today not only because they have a debt crisis, but also because they lack the means to adequately repay (growth rate, current account balance, investments abroad, etc). Other “sinners” (mostly the large industrial nations) have less of a credibility problem: in their case debt is a cost that will limit their competitiveness and the purchasing power of their people.
“The Debt Stress Test provides an early simplified indicator of the magnitude of the public debt issue for each nation,” states IMD Professor Stéphane Garelli, Director of the IMD World Competitiveness Center. “What matters is not only the absolute size of public debt but also the length of time required to absorb it. In the end, debt-stricken nations may suffer severe losses in competitiveness and standards of living.”
The Debt Stress Test estimates a time horizon in which nations will revert to a “bearable” public-debt level of 60% of its respective GDP. However when it comes to debt, numbers do not always give the whole picture.
Japan (2084), Italy (2060) and Belgium (2035) are heavily indebted, but their creditors are mainly domestic institutions (as some economists say “this is money we owe to ourselves…”). On the contrary, the Greek (2031) and the Portuguese (2037) governments face the demand of foreign institutions (foreign banks own €106bn of Greece’s debt and €44bn of Portugal’s).
The IMD, which is a Swiss-based business school, calculates that Ireland’s national debt will not fall below 60% of its GDP until 2021.
