Israel’s economy is No. 1 in the world for resilience to economic cycles and No. 17 for competitiveness, according to the latest rankings of the World Competitiveness Yearbook.

“Israel’s ranking in the top place in terms of the economy’s resilience to crises is a direct result of the actions taken by the Finance Ministry and the Bank of Israel, who withstood the pressure and didn’t stream money to failing organizations and financial institutions as was the case in the US and Europe,” Uriel Lynn, president of the Federation of Israeli Chambers of Commerce, said Thursday.

Israel’s No. 17 ranking for competitiveness, out of 58 countries, placed it after Germany and before China. Last year it was No. 24.

The rankings were compiled by the Swiss Institute for Management Development (IMD).

“IMD is a politically independent body, and its rankings are not less important than the ones published by the Organization of Economic Cooperation and Development,” Lynn said.

IMD analyzes results of its survey according to four categories: economic performance, government efficiency, business efficiency and infrastructure. The countries are then ranked within those categories for quality of research and development, liquidity of capital markets, domestic penetration of high-speed Internet broadband and other parameters.

Israel was ranked No. 1 for its expenditure in research and development as a percentage of gross domestic product, as it was last year, and in the innovative capacity of firms to generate new products, processes and services.

In the business-efficiency category, Israel scored very high in availability of skilled labor, finance skills, entrepreneurship of managers and venture capital.
On the negative side, Israel slipped to No. 54 in workforce participation category, down from No. 51 last year.

In the category for how many days it takes to start up a business, Israel fell to No. 51 from No. 46.

Israel was No. 48, up from No. 51, in government debt-to-GDP.

In the yearbook’s report, a number of challenges for the Israeli economy were identified, including reducing the size of the public sector and its expenditure; reducing bureaucracy and burden on the business sector; investment in infrastructure in the periphery, including education and support of small- and medium-sized enterprises; boosting workforce participation; and decreasing foreign debt.

The global financial crisis pushed the US out of the top spot in this year’s ranking, for the first time in 17 years. It was No. 3 behind Singapore and Hong Kong.

“The US has weathered the risks of the financial and economic crisis thanks to the sheer size of its economy, a strong leadership in business and an unmatched supremacy in technology,” the report said.

“Singapore and Hong Kong have displayed great resilience through the crisis – despite suffering high levels of volatility in their economic performance – and they are now taking full advantage of strong expansion in the surrounding Asian region.” Five of the top 10 economies in the rankings are from the Asia-Pacific region, including Australia (No. 5), Taiwan (No. 8) and Malaysia (No. 10).

European countries fared poorly, mainly due to high levels of government debt, a weakening infrastructure and continued inefficiencies in labor markets. Germany (No. 16) led the larger “traditional” economies such as the UK (No. 22), France (No. 24) and Italy (No. 40).

“Despite a significant budget deficit and growing debt, Germany’s performance is driven by strong trade (second-largest exporter of manufactured goods), excellent infrastructure and a sound financial reputation,” the report said.

The IMD added a debt-stress test that identified which countries have the highest debt levels relative to GDP and will need the most years to pay off those obligations and revert to a level of 60 percent of their respective GDP.

According to the debt-stress test, the largest “old” industrialized nations, including Japan and the UK, will suffer a “debt curse,” in the worst case lasting until 2084. Currently, budget deficits are soaring as a result of the global economic crisis, and it is estimated that the average debt of the G-20 nations, for example, will climb from 76% of their combined GDP in 2007 to 106% in 2010.

Israel with a current debt-to-GDP ratio of about 80%, won’t be able to reduce its ratio to 60% until 2019, the report said.

“Although the ‘great recession’ is over, the consequences of the crisis will continue to be felt for quite some time,” the report said.

Countries such as Greece, Portugal and Spain have a credibility problem not only because they have a debt crisis, but also because they lack the means to adequately repay.

“It is unfortunately to be expected that these three nations, which all have significant budget deficits, growing debt and weak trade performance, will suffer from further recession this year,” the report said. “This crisis will test the credibility of the euro. The only good news is that a weak euro can boost exports.”

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