Portugal has tumbled down the rungs of the ranking to 39th place. The drop, the sharpest of all European countries in the ranking, is viewed by the IMD as a “reversal from gains made the previous year, when it ranked 33rd out of 63 economies” – the best position it had held since 2004, when it came in 32nd.

Established in 1989, the IMD World Competitiveness Rankings incorporate 235 indicators from each of the 63 ranked economies. It takes into account a wide range of ‘hard’ statistics such as unemployment, GDP and government spending on health and education, as well as ‘soft’ data from an Executive Opinion Survey covering topics such as social cohesion, globalisation and corruption.

This information feeds into four categories – economic performance, infrastructure, government efficiency and business efficiency – to give a final score for each country.

The report is elaborated by the renowned Swiss Institute for Management Development (IMD) and partnered in Portugal by the Porto Business School (PBS).

“There is no one-size-fits-all solution for competitiveness, but the best-performing countries tend to score well across all four categories”, the IMD summarises.

The Institute highlighted two key factors that could help explain Portugal’s sharp descent: retractions in public investment in education and a slowing in the digital transformation of companies.

It said a reduction of one percentage point in public expenditure on education “is one of the arguments that underpin the decline of Portugal in the global ranking, in the Education indicator”.

The report further added that the digital transformation in Portuguese companies “registered a slowdown compared to the previous year”, with Portugal currently occupying 35th position in terms of the use of digital tools and technologies.

In comments quoted by newsite Diário de Notícias, respected economist Álvaro Almeida, of the Porto Business School, recalls that the document “is a ranking and not an absolute value”, and therefore the economy “may even be growing, but worsening in the criteria of economic performance, provided that other countries have a better performance”.

That is, in comparative terms, “the growth of the Portuguese economy was slower because there are others that have improved more”, he explains.

Regarding the Portuguese economy, the two main challenges for the country as outlined by the IMD seem clear-cut: a structural reduction of the public deficit, and reducing public debt in a long-term perspective.

Conversely, Portugal fared well in business legislation, where it is the 19th most competitive country, and also held a solid position in the infrastructure category, namely in the area of health and environment, where it occupies 21st place.

Of the 235 indicators evaluated, the report identifies some where Portugal shone through, namely an improvement in employment, specifically in terms of youth unemployment and long-term unemployment.

“Public finances also registered a slight acceleration, boosting Portugal from 54th to 53rd in the global ranking, and the volume of national exports also rose from 2018 to 2019”, the IMD highlighted.

The authors of the document stressed that it has been a tough year for Europe in terms of competitiveness; elsewhere, the Nordics, which the IMD stressed in a statement are “traditionally a driving force for competitiveness”, failed to make significant progress this year, while “constant uncertainty about Brexit” saw the UK drop from 20th to 23rd position.

Ireland was an exception to the general rule and the European country that improved the most, climbing five places to seventh place “due to improved business conditions and the strengthening of the economy”.

The IMD explains that economists regard competitiveness as vital for the long-term health of a country’s economy, “as it empowers businesses to achieve sustainable growth, generate jobs and, ultimately, enhance the welfare of citizens”.

Arturo Bris, IMD Professor and Director of the IMD World Competitiveness Center, the research centre which compiles the ranking, said: “In a year of high uncertainty in global markets due to rapid changes in the international political landscape as well as trade relations, the quality of institutions seem to be the unifying element for increasing prosperity.

“A strong institutional framework provides the stability for business to invest and innovate, ensuring a higher quality of life for citizens”.