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World Economic Forum Report Warns of Wobbly Economic Recovery

World Economic Forum Report Warns of Wobbly Economic Recovery
Photo credit: World Economic Forum

As global economies continue to rebound from the Great Recession nearly a decade ago, the prospects for a sustained economic recovery remain at risk, according to the new World Economic Forum’s “Global Competitiveness Report 2017-2018.”

The report, an annual assessment of the factors driving countries’ productivity and prosperity, cites a “widespread failure on the part of leaders and policy makers to put in place reforms necessary to underpin competitiveness and bring about much-needed increases in productivity” as reasons for the lack of sustained economic progress.

For the ninth consecutive year, the report’s Global Competitiveness Index found Switzerland to be the world’s most competitive economy, narrowly ahead of the U.S. and Singapore. Among the other G20 economies in the top 10 are Germany at number five, the U.K. at eighth and Japan at number nine. China is the highest ranking among the BRICS group of large emerging markets, moving up one rank to 27.

Areas of concern

The report highlights three areas of greatest concern. Foremost is the financial system, where levels of “soundness” have yet to recover from the shock the recession and in some parts of the world are declining further. This is especially of concern given the important role the financial system will need to play in facilitating investment in innovation related to the so-called Fourth Industrial Revolution.

[Read more about the global economic outlook: IMF Global Outlook Strong, but Pockets of Weakness Remain]

Another key finding is that competitiveness is enhanced by combining degrees of flexibility within the labor force with adequate protection of workers’ rights. With vast numbers of jobs set to be disrupted by automation and robotization, creating conditions that can withstand economic shock and support workers through transition periods will be vital, the WEF said.

GCI data also suggests that the reason innovation often fails to ignite productivity is due to an imbalance between investments in technology and efforts to promote its adoption throughout the wider economy.

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“Global competitiveness will be more and more defined by the innovative capacity of a country,” said Klaus Schwab, founder and executive chairman of the WEF. “Talents will become increasingly more important than capital and therefore the world is moving from the age of capitalism into the age of ‘talentism.’ Countries preparing for the Fourth Industrial Revolution and simultaneously strengthening their political, economic and social systems will be the winners in the competitive race of the future.”

Inside the rankings

With Switzerland, the Netherlands and Germany remaining stable on first, fourth and fifth spots, respectively, the only changes in the top five apply to the U.S. and Singapore, which swap second and third positions. Elsewhere in the top 10, Hong Kong, a special administrative region of China, jumped three places to sixth, edging out Sweden at seventh, and moving the U.K. and Japan down a spot. With Finland holding in 10th, the other notable mover was Israel, which climbed eight places to number 16.

In Europe, France dropped one position to 22, while Portugal moved up four places to 42, moving over Italy, which dropped to number 43. Elsewhere in Europe, Spain stayed at number 34 and Greece at 87.

General trends over the past decade have seen an improvement in aspects of Europe’s innovation ecosystems, but a worrying deterioration in some important education indicators, the report noted. Russia improved five positions, moving to 38, driven by improvements in basic requirements and innovation.

North America remains one of the most competitive regions in the world. Leading in innovation, business sophistication and technological readiness, and ranking close to the top in the other pillars of competitiveness. In addition to the U.S. rising to No. 2, Canada improved one position to 14.

In addition to Singapore, Hong Kong and China, among the 17 East Asia and Pacific economies, 13 increased their overall score, with Indonesia and Brunei Darussalam making the largest strides since last year.

“There have been signs of a productivity slowdown among the region’s advanced economies and in China, suggesting the need to pursue efforts to further increase technological readiness and promote innovation,” the report said.

India at 40th remained the most competitive country in South Asia, as most nations in the region improved their performance, with Pakistan moving up seven spots to 115 and Bangladesh also moving to seven places to 99th, with both countries improving across all pillars of competitiveness.

Latin America and the Caribbean have seen 10 years of continued improvement in competitiveness. Chile continues to lead the region at placing 33, followed by Costa Rica, ranked 47 after improving seven positions. Panama comes next, ranking 50 after falling eight positions. Argentina showed the most improvement, going up 12 positions to 92, as Brazil improved one position to number 80, as did Mexico, now ranked 51st. Colombia and Peru each fell five positions, ranking 66 and 72, respectively.

The Middle East and North Africa region improved its average performance this year, despite deterioration in the macroeconomic environment in some countries. Low oil and gas prices are forcing the region to implement reforms to boost diversification, and heavy investments in digital and technological infrastructure have allowed major improvements in technological readiness. However, these have not yet led to an equally large turnaround in the region’s level of innovation. The United Arab Emirates at 17th led the way among the Arab countries, followed by Qatar at 25th, while the most-improved country was Egypt, climbing 14 spots to 101.

On average, sub-Saharan Africa’s competitiveness has not changed significantly over the past decade and only a handful of countries–Ethiopia at 108, Senegal at 106, Tanzania at 113 and Uganda at 114–showed improvement. Leading the ranking in the region was Mauritius at 45, Rwanda at 58, South Africa at 61 and Botswana at 63.

In general, Africa is still being penalized by its macroeconomic environment, the WEF said. Average inflation grew to double digits last year, while public finances are still being affected by relatively low commodity prices that curbed public revenues and government investments.