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Northern Europe, U.S., East Asia
Remain Tops in Competitiveness
Largest European Economies Lose Ground,
According to Closely Watched Survey
By G. THOMAS SIMS
Staff Reporter of THE WALL STREET JOURNAL
September 28, 2005 9:38 a.m.
FRANKFURT ? Europe's largest economies ? Germany, the U.K., France, Italy, and Spain ? are all losing ground in an annual survey on global competitiveness, dragged down by concerns of sluggish economic growth and high budget deficits.
The rankings, published Wednesday by the Geneva-based World Economic Forum, pit Italy and Poland as the least competitive members of the European Union. Italy has slipped steadily to 47th of the 117 nations measured this year from 26th in 2001, and it now lags countries such as Tunisia and is just ahead of Botswana. Italy is burdened by perceptions that its government is interfering in the private sector, as recently alleged in the Bank of Italy's intervention in banking mergers.
Finland for the third consecutive year and the U.S. for a second straight year, respectively, once again top the international organization's list of most competitive economies in the annual survey, though the U.S.'s image is tarnished by the health of an economy posting large budget deficits and near-record trade deficits.
Along with Finland, the Nordic European countries of Sweden, Denmark, Iceland and Norway hold five of the top 10 spots, as they did last year.
Other stars include Taiwan and Singapore, ranking fifth and sixth, respectively, ahead of 12-seated Japan, which is still suffering from years of deflation.
China and India, often cited as the greatest competitive threats to western economies as they flood markets with cheap products and labor, ranked 49th and 50th. Despite their high growth rates in recent years, the survey found that both countries need to cut red tape, educate their people and improve infrastructure in order to continue to compete in the years ahead.
The World Economic Forum defines competitiveness not just on the basis of productivity and exchange rates. It also looks at policies and institutions that can affect productivity and prosperity.
Western Europe's slip in competitiveness from the beginning of the decade ? though from fairly high levels -- reflects the region's economic development of late. Gross domestic product in the 12-nation euro zone that forms the bulk of the region's economy is projected to have expanded on average at just 1.3% during the first five years of this decade, compared with more than 2% during the previous decade. The euro zone is forecast to grow just 1.2% this year, behind 3.5% growth in the U.S. and 4.3% growth globally, according to recent forecasts by the International Monetary Fund. The region's budget deficit has risen to 2.7% of GDP in 2004 from 1.9% of GDP in 2001.
"What you have is several years of low growth, which has damped the mood of the business community," said Augusto Lopez-Claros, chief economist of the World Economic Forum. "There is an impact on investment, on hiring. It is a slight vicious circle. ? This means the business community is in a mood of retrenchment."
The United Kingdom slipped to 13th place from 11th last year; Germany to 15 from 13; and France to 30 from 27.
The dimmer outlook for nations such as Germany and France, which the IMF expects to grow this year 0.8% and 1.5%, respectively, is even beginning to harm the outlook for relatively robust Spain, which has been one of the euro zone's fastest growing economies in recent years. Spain's overall ranking dropped to 29 from 23, and the indicator ranking Spain's economic outlook has dropped to 65 this year from 29 in 2001. "You look at the growth figures and Spain is doing well, but with respect to a bad neighborhood," Mr. Lopez-Claros said.
Italy, however, is the real outlier in Western Europe with its economy expected to remain stagnant this year. The survey's measure of the short-term outlook ranks Italy 110 of the 117 countries surveyed.
But Italy's problems go beyond the short-term outlook. Italy's government debt is more than 106% of GDP, above the 63% average of the 25-nation EU and just a touch below Greece, according to the EU's statistics office. This is putting pressure on its credit ratings, making it more expensive to borrow for investment and new jobs, and raising questions about how it will finance an increasingly aging population in the decades ahead.
And as the Forum points out, Italy economy relies heavily on low-growth mature industries, such as textiles, clothing, and shoes, which need cheap labor to prosper and are as a result coming under increasing pressure from China. After ceding its lira for the euro in 1999, the nation can no longer devalue its currency to regain competitiveness.
Also weighing on Italy is the perception that the government favors well connected firms and individuals in deciding upon contracts and policies. Here, Italy ranked 72nd of 117. Antonio Fazio, governor of the Bank of Italy, has made headlines recently over his role in allegedly attempting to block a Dutch bank from taking control of an Italian lender. Though he insists he acted correctly, prosecutors have collected large amounts of evidence that indicates Mr. Fazio went out of his way to prevent the foreign bank from winning the takeover battle.
"The perception that the Bank of Italy was meddling and not playing the role of equidistant regulator and rather the role of blocker?has played a role in shifting the position of the business community," Mr. Lopez-Claros said.
Northern Europe, U.S., East Asia
Remain Tops in Competitiveness
Largest European Economies Lose Ground,
According to Closely Watched Survey
By G. THOMAS SIMS
Staff Reporter of THE WALL STREET JOURNAL
September 28, 2005 9:38 a.m.
FRANKFURT ? Europe's largest economies ? Germany, the U.K., France, Italy, and Spain ? are all losing ground in an annual survey on global competitiveness, dragged down by concerns of sluggish economic growth and high budget deficits.
The rankings, published Wednesday by the Geneva-based World Economic Forum, pit Italy and Poland as the least competitive members of the European Union. Italy has slipped steadily to 47th of the 117 nations measured this year from 26th in 2001, and it now lags countries such as Tunisia and is just ahead of Botswana. Italy is burdened by perceptions that its government is interfering in the private sector, as recently alleged in the Bank of Italy's intervention in banking mergers.
Finland for the third consecutive year and the U.S. for a second straight year, respectively, once again top the international organization's list of most competitive economies in the annual survey, though the U.S.'s image is tarnished by the health of an economy posting large budget deficits and near-record trade deficits.
Along with Finland, the Nordic European countries of Sweden, Denmark, Iceland and Norway hold five of the top 10 spots, as they did last year.
Other stars include Taiwan and Singapore, ranking fifth and sixth, respectively, ahead of 12-seated Japan, which is still suffering from years of deflation.
China and India, often cited as the greatest competitive threats to western economies as they flood markets with cheap products and labor, ranked 49th and 50th. Despite their high growth rates in recent years, the survey found that both countries need to cut red tape, educate their people and improve infrastructure in order to continue to compete in the years ahead.
The World Economic Forum defines competitiveness not just on the basis of productivity and exchange rates. It also looks at policies and institutions that can affect productivity and prosperity.
Western Europe's slip in competitiveness from the beginning of the decade ? though from fairly high levels -- reflects the region's economic development of late. Gross domestic product in the 12-nation euro zone that forms the bulk of the region's economy is projected to have expanded on average at just 1.3% during the first five years of this decade, compared with more than 2% during the previous decade. The euro zone is forecast to grow just 1.2% this year, behind 3.5% growth in the U.S. and 4.3% growth globally, according to recent forecasts by the International Monetary Fund. The region's budget deficit has risen to 2.7% of GDP in 2004 from 1.9% of GDP in 2001.
"What you have is several years of low growth, which has damped the mood of the business community," said Augusto Lopez-Claros, chief economist of the World Economic Forum. "There is an impact on investment, on hiring. It is a slight vicious circle. ? This means the business community is in a mood of retrenchment."
The United Kingdom slipped to 13th place from 11th last year; Germany to 15 from 13; and France to 30 from 27.
The dimmer outlook for nations such as Germany and France, which the IMF expects to grow this year 0.8% and 1.5%, respectively, is even beginning to harm the outlook for relatively robust Spain, which has been one of the euro zone's fastest growing economies in recent years. Spain's overall ranking dropped to 29 from 23, and the indicator ranking Spain's economic outlook has dropped to 65 this year from 29 in 2001. "You look at the growth figures and Spain is doing well, but with respect to a bad neighborhood," Mr. Lopez-Claros said.
Italy, however, is the real outlier in Western Europe with its economy expected to remain stagnant this year. The survey's measure of the short-term outlook ranks Italy 110 of the 117 countries surveyed.
But Italy's problems go beyond the short-term outlook. Italy's government debt is more than 106% of GDP, above the 63% average of the 25-nation EU and just a touch below Greece, according to the EU's statistics office. This is putting pressure on its credit ratings, making it more expensive to borrow for investment and new jobs, and raising questions about how it will finance an increasingly aging population in the decades ahead.
And as the Forum points out, Italy economy relies heavily on low-growth mature industries, such as textiles, clothing, and shoes, which need cheap labor to prosper and are as a result coming under increasing pressure from China. After ceding its lira for the euro in 1999, the nation can no longer devalue its currency to regain competitiveness.
Also weighing on Italy is the perception that the government favors well connected firms and individuals in deciding upon contracts and policies. Here, Italy ranked 72nd of 117. Antonio Fazio, governor of the Bank of Italy, has made headlines recently over his role in allegedly attempting to block a Dutch bank from taking control of an Italian lender. Though he insists he acted correctly, prosecutors have collected large amounts of evidence that indicates Mr. Fazio went out of his way to prevent the foreign bank from winning the takeover battle.
"The perception that the Bank of Italy was meddling and not playing the role of equidistant regulator and rather the role of blocker?has played a role in shifting the position of the business community," Mr. Lopez-Claros said.
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