Singapore was toppled off its perch in the IMD World Competitiveness Ranking 2021, which saw Switzerland take the spot for the first time. Sweden, Denmark and the Netherlands followed, with Singapore ranked 5th.
This year’s rankings reflect the impact of COVID-19 on economic competitiveness, according to the IMD. In particular, they are a reflection of European countries weathering the COVID-19 pandemic better than countries in most other parts of the world. Even countries that were hit hard by the pandemic, but had strong economic buffers, have done well in the rankings, such as the US and the UK.
The countries that have performed better in the rankings are characterised by varying degrees of investment in innovative capabilities, diverse economic activities and supportive public policy, according to the IMD.
Unravel spoke with José Caballero, senior economist at the IMD World Competitiveness Center, about the rankings, why European economies fare better than the rest this year, and reasons for China’s improved performance.
Unravel: What do this year’s rankings tell us about how economies have handled the COVID-19 pandemic?
José Caballero: In 2020, all economies faced two challenges: the pandemic and the subsequent economic crisis. Hong Kong and Singapore addressed the pandemic effectively and efficiently. They did so, partly, by monitoring the rate of infection and closing their borders. Although closing borders was an effective strategy towards tackling COVID-19, it negatively impacted the economy.
In the case of Hong Kong, for example, it led to the downturn of several measures of employment. Among those measures, we can mention long-term and youth unemployment. In addition, international investment and productivity also declined, although to a lesser extent.
In the case of Singapore, the performance in employment and productivity displays a similar declining pattern. Other economies that performed better in the ranking, not only implemented border closures but in addition developed more supportive public policies that enabled them to sustain an effective level of economic activities.
Unravel: Economies that were caught most off guard with managing the health side of the pandemic were not necessarily those that suffered the most on an economic level – what do you think explains this?
Mr Caballero: As stated earlier, this is mainly due to supportive polices that allowed the economy to maintain a healthy level of economic performance.
Unravel: China has made rapid strides on the index. In your view, what factors help explain the gains it has made?
Mr Caballero: China managed to address both the challenges of the pandemic and the economy in a most effective way. It controlled the spread of COVID-19 and employed supportive fiscal and monetary policies while simultaneously providing liquidity to sustain and foster further economic activity, even during the peak of the pandemic.
Unravel: And what explains the continued dominance of European economies at the top of the table? What are they doing right that other economies can aspire to?
Mr Caballero: Under “normal” conditions, Western European economies are innovation-driven displaying a business-friendly legislation and reliable institutions. At the same time, they have robust infrastructure and strong educational systems.
In the context of the pandemic, although western economies were not as successful in tackling the pandemic during its early stages as some of their Asian counterparts, they were able to support their economic activity with appropriate policies and the provision of liquidity. In the case of Switzerland, for example, such supportive policies contributed to sustaining strong levels of employment, labour force motivation and productivity. Those policies, in short, greatly contributed to high levels of international trade and investment, and a robust overall economic performance. Although to different degrees, such pattern is similar among other western economies such as Denmark.