For a couple of decades now, Lausanne’s Institute for Management Development (IMD) has published what many consider to be the leading annual ranking of the world’s most competitive countries. This year, the Swiss business school has gone one step further. It has indulged in the fashion for stress testing by drawing up a stress test ranking of countries expected to cope better with the financial crisis and rebound quicker than others.
The US continues to lead the IMD’s traditional world competitiveness league table, but it comes a miserable 28 in the new stress test rankings. This appears to underline the depth of the crisis in the US and the time it will take to solve it. In contrast, smaller nations with fewer than 30m inhabitants in northern Europe and south-east Asia scored strongly in the stress testing – with Denmark finishing top.
Given the much vaunted Danish model – considered by some as a modern economic utopia – it is no big surprise Denmark came first. It reflects the Nordic nation’s resilient business and government systems as well as the long established stability of Danish society. Singapore follows Denmark in second place followed by Qatar, Norway, Hong Kong, Switzerland and Sweden.
Prof Stephane Garelli, the head of the business school’s competitiveness studies, says the new rankings show how smaller economies are usually better equipped to adapt and rebound in difficult times. Another explanation is that several of the nations that scored strongly had undergone quite severe financial and property crises in the not-so-distant past and might have been more cautious in their policies.
Larger exporting nations have come under greater stress than smaller ones: China came 18th in the new stress test league table; Taiwan 21st, Brazil 22nd; Germany 24th; Japan 26th; and South Korea 29th.
The UK finds itself in the uncomfortable position of 34th, but that is nonetheless better than France (44th), Italy (47th) and Spain (50th). IMD argues that this underlines how much the recovery in these three big European economies risks being hampered by their continued structural inflexibility. As for Russia, the country only comes 51st in the rankings, showing that it may not have had enough years of economic growth to consolidate the structure of its economy and create the necessary conditions to cope with the magnitude of the crisis.
Prof Garelli says the stress testing exercise shows that smaller nations, which are resilient and with stable socio-political systems, are better placed to benefit immediately from the recovery when it finally comes. But he cautions that confidence in the world markets will be restored only when the performance of large exporters such as the US, Germany, China or Japan starts showing solid improvement. “That will send a credible message to the world that the worst is over.”
Loss of altitude
Europe’s three biggest airlines – Air France-KLM, Lufthansa and British Airways – appear to be suffering more than their North American and Asian competitors in the current crisis. That is probably because they rely far more than their rivals on the extensive international airline networks they have developed than on domestic or regional markets.
Air France-KLM reported this week its first loss since the French and Dutch airlines merged five years ago and warned of stormy times ahead. On Friday, it will be the turn of BA to report financial figures that are expected to show a big loss and a deteriorating performance. The UK flag carrier seems to be under greater pressure than its Franco-Dutch rival given its heavy dependence on its transatlantic and premium class businesses that have been clobbered by the recession.
Lufthansa has not escaped, though it has managed to hold up better than its two big European rivals largely thanks to its diversified business model. While passenger and cargo activities have been badly hit by the crisis, its aircraft maintenance unit was in profit while earnings in its catering activities grew surprisingly strongly. The German carrier is sticking to the forecast it will be one of the few European airlines to show an operating profit this year.
That said, Lufthansa has warned it will have to continue cutting costs, reducing capacity and adapting its operations to one of the deepest crises that the highly cyclical airline industry has had to face.
The International Air Transport Association expects member airlines to lose about $2.5bn this year. European carriers are likely to account for $1bn of this, while their North American rivals (and also their code sharing and commercial American airline partners) will probably manage to keep flying in the black and chalk up between them a modest accumulated profit of about $100m. The US may have sparked the global financial crisis, but Europe – at least in the case of the airline sector – seems to have become the biggest victim.
