GENEVA — The U.S. has retained its status as the world’s most competitive economy despite the credit crunch and the sharp economic downturn, a new global survey said.

However, the report points out that new players in the global economy such as sovereign wealth funds and local companies, and new local brands emerging in such countries as China, India, Brazil, Turkey and Russia are rapidly becoming very global and will strive to challenge the status quo.

“The power base of the world economy, which used to be centered on the U.S., Japan, Europe, is now more diluted,” according to the report.

Looking ahead, the Lausanne, Switzerland-based IMD’s “World Competitiveness Yearbook, 2008,” which ranks 55 national economies on the basis of 331 criteria and data drawn from an opinion survey by 4,000 executives worldwide, said during the next two decades a new middle class in Asia, especially in dynamic China and India, Russia, Central Europe and the oil rich Gulf region, “will be the engine of world growth.”

The study notes that already since 2000, about 600 million people in these counties and regions have reached middle class and spend on average some $4 trillion annually on consumer goods, including luxury goods, and on infrastructure.

“The new middle class — just like in Europe and the U.S. in the 20th century — is eager to buy branded products…as a consequence the private consumption portion of GDP is expanding rapidly,” said Stephane Garelli, director of the IMD’s World Competitiveness Center. “Companies could thus be well advised to focus their products and services on the needs of this new middle class,” he said.

In India, 50 million are middle class today but the figure is expected to reach 589 million by 2025, noted the report.

But Garelli also warned that protectionist retaliation “will increasingly confront acquisitions pursued by emerging powers.

“Public opinion and governments are increasingly sensitive to potential loss of economic power and national prestige. Sovereign funds will be the first targets,” he said and added: “Such protectionist measures will rely on issues such as environment protection, corporate governance, social protection or intellectual property.”

This story first appeared in the May 15, 2008 issue of WWD. Subscribe Today.

So-called sovereign wealth funds — managed by governments — are estimated today at around $3.3 trillion. ADIA from Abu Dhabi, for example, is said to be worth $900 billion, Garelli said.

The IMD chief said 2008 “will be rough” and added a recession in the U.S. “is a strong possibility.”

“Will it last and will it spread? In both cases the answer is yes,” he said.

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