The US remains the world's most competitive economy but risks plunging into an economic recession just like Japan in the 1990s because of structural weaknesses, a new study warned yesterday.
The US once again ranked first in an annual competitiveness survey by the Swiss-based Institute for Management Development (IMD), but risks being toppled from its plinth with both Singapore and Hong Kong close behind.
“Singapore is closing the gap with the US and 2008 might be the turning point where the US falls from its leadership of top competitors,” the IMD said in a statement.
IMD economist Stephane Garelli said the US situation bears hallmarks of Japan’s position twenty years ago, just before it slid into a decade of recession, and when the Lausanne-based institute carried out its first competitiveness survey.
“The past crisis in Japan bears some resemblance with the present turmoil in the US,” he said.
In 1989, “Japan’s competitiveness seemed unassailable, with a strong domination in economic dynamism, industrial efficiency and innovation,” he said.
“Then all hell broke loose: The stock market went into reverse in 1989, land prices collapsed in 1992, credit cooperatives and regional banks came under attack in 1994, large banks teetered on the edge of bankruptcy in 1997 and a major credit crunch occurred in 1998,” Garelli said.
“Does this ring a bell?” Garelli asked rhetorically.
The US economy has been badly hit by the subprime mortgage crisis and the IMF has forecast a “mild recession” with annual growth at a paltry 0.5 percent for this year.
However, Garelli said the comparison with Japan was not watertight, noting that “because of its openness, resilience and entrepreneurship, [the US] always seems to find the means to reinvent itself in ways that Japan [and much of Europe] often lacks.”
Washington has also learned from Tokyo’s mistakes in some respects, particularly in supplying liquidity to embattled financial institutions, he said.
“The [US} Federal Reserve and the Treasury were thus quick to realize the magnitude of the risk and will continue to take drastic action,” he said.
Significant challenges remain, however.
“The structural deficits in the US [balance of trade, budget and, as a consequence, national debt] have ultimately to be addressed otherwise the dollar will remain weak,” Garelli warned.
“In the 20 years that we have ranked and analyzed competitiveness, we have learned one thing — no nation, however competitive, is immune to a breakdown, especially when it stems from the financial sector,” he said.
Ten European countries featured among the 55 surveyed, including Switzerland in 4th place, Luxembourg 5th, Sweden 9th, the Netherlands 10th, Norway 11th and Ireland 12th.
Britain, France and Italy, the European members of G8, languished in 21st, 25th and 46th place respectively.