For the third year in a row, the United States has dropped among global competitive economies – this year from 4th most competitive to 5th.Switzerland is at the top of the rankings, followed by Singapore, Sweden, and Finland. For a bit of perspective, Greece ranked 90th out of 142 countries.
(CLICK HERE to read the World Economic Forum Global Competitiveness Report, September 22, 2011)
The report is largely heralded as an indicator of future growth for the countries evaluated. Rankings are based on 12 competitive categories, including higher education and training, goods market efficiency, labor market efficiency, financial market development, and innovation.
Not surprisingly, the report cites public distrust of government and business leaders as a primary reason why the U.S. continues to drop in the rankings. Researchers indicated that the U.S. must reduce its deficit and restore economic stability before it can move up in the rankings.
Weighing in as the world’s second largest economy, China ranked 26th in its competitive ranking this year. Elizabeth Lynn, Emerging Market Strategist with Morgan Stanley Smith Barney, recently observed that economic growth in the Asian emerging markets will depend on China, whose policy response following the 2008 financial crisis was the most aggressive – a $586 billion stimulus package. Now, Lynn explains, “we expect China’s policymakers to try to institute measured fiscal expansion to boost domestic growth – including social housing, consumer spending and urbanization projects – if exports slacken.” 1
Morgan Stanley’s economists estimate EM economic growth of 6.4% for 2011 and 6.1% for 2012 – compared to 1.5% for this year and next among developed economies. This scenario provides a solid foundation for stocks in those regions, whereas organic growth in the U.S. is more likely to be flat for the foreseeable future.
(CLICK HERE to view Morgan Stanley Smith Barney’s Global Investment Committee Report, September 2011)
If you’ve been reluctant to diversify your investment portfolio with more international exposure, these findings should help clarify where the U.S. stands in comparison to the rest of the world. Despite the recent S&P™ ratings downgrade, the U.S. is still considered second to none in terms of financial stability and its ability to make payments. Yet despite this stability – or perhaps because of it – there are other economies in the world that offer not just more growth potential, but also less volatility among risk assets.
In a recent interview with BBC News, Lord Desai (a professor at the London School of Economics and a member of the House of Lords) observed that the virtues of capitalism – risk-taking, saving, investing, hard work – have now migrated to countries like China, India, Indonesia, Korea and Japan. “If Asia has vigorous energetic capitalism and we have tired old capitalism, we will end up paying a huge price and we will trade our prosperity for their prosperity … That is the lesson of the contemporary world.”2
(CLICK HERE to read, Has Western Capitalism Failed? at BBC News, September 22, 2011)
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1 Morgan Stanley Smith Barney Global Investment Committee Report. http://fa.smithbarney.com/public/projectfiles/2b4a75e4-4ba4-45b5-8a47-9e815c0b02bf.pdf. Accessed September 27, 2011.
2 “Has Western Capitalism Failed?” BBC News. http://www.bbc.co.uk/news/mobile/business-14972015. Accessed September 27, 2011.