Most Competitive Nation? U.S. Ousted as No. 1

In the Chinese Year of the Tiger, two Asian tigers have leapt out of recession to take the top spots in a ranking of the most competitive nations in the world.

In the 2010 edition of the World Competitiveness Yearbook, released on Wednesday by the Lausanne-based Institute for Management Development (IMD), Singapore and Hong Kong have both moved up one spot to take first and second place respectively as the world's most competitive nations. Both countries have now surpassed the U.S. for the first time in decades, knocking it into third place after its 16-year reign as No. 1. (See the TIME 100.)

The World Competitiveness Yearbook is widely considered to be the most comprehensive up-to-date ranking of how industrialized and emerging nations are managing their governments, businesses, people and infrastructure. To build the list, Stephane Garelli, Director of IMD's World Competitiveness Center, and his team crunch more than 320 different criteria — including economic performance, government and business efficiency, infrastructure, exports, and the level of corruption — to calculate the performance of 58 key countries.

Based on information gathered over the course of last year, the IMD has concluded that while some Asian nations were as badly hit as other regions by the crippling financial crisis, they have managed to pull themselves out of recession faster than most. "Competitiveness is not just about improving performance, but also about damage control and resilience to downward forces," says Garelli. "Singapore and Hong Kong suffered during the recession, but demonstrated a striking ability to rebound." (See TIME's Best of Asia 2010.)

While much of the Western world is still recovering from the economic downfall, Hong Kong and Singapore "are benefiting from strong expansion in the surrounding Asian region," Garelli, adds, pointing out that during the first quarter of 2010, Singapore's economy grew 13.1% and China's 11.9%, while Europe is limping behind with the projected growth of only 1% this year. "The turmoil around the euro indicates that the markets are worried not only about Greece and other weak links in the euro zone," he says. "They also question Europe's ability to combine debt, austerity measures and economic growth."

One notable exception is Switzerland, in fourth place, which maintains its high ranking thanks to "strong economic fundamentals and a well-defended position on export markets," says Garelli. As for the U.S., Garelli says the former longtime champ slipped into third place this year under the weight of budget deficits, debt, a drop in the value of its financial assets and rampant unemployment. But even amid the turmoil, according to the IMD, the country's fundamental economic strengths remain almost unscathed. "The U.S. has limited its damage thanks to the sheer size of its economy, as well as strong leadership in technology and business competitiveness," says Garelli.

While it may be difficult to predict long-term evolution in an ever-changing global economy, some trends can be deduced from the data. This year's findings, Garelli says, point to the continued growth of once-lagging markets such as Brazil, Russia, India, China and other regions in Asia and Latin America that have successfully developed their industrial base. "For the first time, the emerging economies seem to create an economic bloc, which becomes increasingly self-sufficient and encompasses markets with a growing middle class, raw materials, money, technology and global brands," he notes. "For example, last year China directed 56% of its exports to other emerging nations, instead of to the U.S. or Europe." (See pictures of Shanghai's World Expo.)

But while these emerging economies are becoming more robust, the largest industrialized nations, including Japan, Germany and Great Britain, will continue to be saddled by debt, in some cases until 2084, the yearbook predicts. "Budget deficits are soaring and it is estimated that the average debt of the G20 nations will rise from 76% of their combined GDP in 2007 to 106% this year," Garelli says. "For those countries, the consequences of the recession will be felt for some time."

See more on Singapore.

See pictures of Hong Kong.