Global

CHAPTER 1.1

The Global Competitiveness Index 2011–2012: Setting the Foundations for Strong Productivity
XAVIER SALA-I-MARTIN BEÑAT BILBAO-OSORIO JENNIFER BLANKE MARGARETA DRZENIEK HANOUZ THIERRY GEIGER World Economic Forum

The Global Competitiveness Report 2011–2012 is coming out at a time of re-emerging uncertainty in the global economy. At the beginning of the year, worldwide recoveryappeared fairly certain, with economic growth for 2011 and 2012 projected by the International Monetary Fund (IMF) at 4.3 percent and 4.5 percent, respectively. However, the middle of the year saw uncertainties regarding the future economic outlook re-emerge, as growth figures for many economies had to be adjusted downward and the political wrangling in the United States and Europe underminedconfidence in the ability of governments to take the necessary steps to restore growth. Recent developments reinforce the observation that economic growth is unequally distributed and highlight the shift of balance of economic activity. On the one hand, emerging markets and developing economies, particularly in Asia, have seen relatively strong economic growth—estimated at 6.6 and 6.4 percent for 2011and 2012, respectively, and attracting increasing financial flows. On the other hand, the United States, Japan, and Europe are experiencing slow and decelerating growth with persistent high unemployment and continued financial vulnerability, particularly in some European economies. GDP growth rates for advanced economies in 2011 are expected to remain at levels that, for most countries, are notstrong enough to reduce the unemployment built up during the recession. In this context, policymakers across all regions are facing difficult economic management challenges. After closing the output gap and reducing the excess capacity generated during the crisis, emerging and developing countries are benefitting from buoyant internal demand, although they are now facing inflationary pressures causedby rising commodity prices. In advanced economies, the devastating earthquake in Japan and doubts about the sustainability of public debt in Europe, the United States, and Japan—issues that could further burden the still-fragile banking sectors in these countries—are undermining investor and business confidence and casting a shadow of uncertainty over the short-term economic outlook. Particularlyworrisome is the situation in some peripheral economies of the euro zone, where—in spite of the adoption of recovery plans— high public deficit and debt levels, coupled with anemic growth, have led to an increased vulnerability of the economy and much distress in financial markets, as fears of default continue to spread. This complex situation in turn encumbers the fiscal consolidation that willreduce debt burdens to the more manageable levels necessary to support longer-term economic performance. Meeting the economic policy challenges resulting from this two-speed recovery requires not losing sight of long-term competitiveness fundamentals amid numerous short-term political pressures in industrialized and emerging economies alike. Many of the current difficulties experienced by advancedeconomies, notably

The Global Competitiveness Report 2011-2012 © 2011 World Economic Forum

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in the peripheral euro zone, are closely related to modest competitiveness performances that limit longterm productivity growth. Efforts to stabilize fiscal positions and reduce debtburdens must therefore be complemented by competitiveness-enhancing reforms aimed at improving the potential for growth in the medium-to-longer run. In emerging markets, high growth rates provide a propitious environment for enhancing competitiveness through structural reforms and growth-enhancing investments in order to make economic development more sustainable. Competitive economies have in place...