The decline of commodity prices, a strong dollar and weakened balance sheets have eroded Asia's competitiveness as a whole, though countries including India, Thailand and Japan have moved up this year, says the Switzerland-based International Institute for Management and Development (IMD).
According to the IMD World Competitiveness Center, Malaysia (19th), South Korea (29th), Indonesia (48th) and Taiwan (14th) have suffered "significant falls" this year from their 2015 positions. China has also dropped three notches to 25th place.
Singapore slipped one place to fourth position as the only Asean country among the top five most competitive economies in the world. Hong Kong, meanwhile, has overtaken the United States as the world's most competitive economy in the 2016 ranking that covers 61 countries from both industrialised and developing regions.
"On the whole, there has been a significant drop in Asia's competitiveness since our last ranking," said Professor Arturo Bris, director of the centre.
"This general decline has been caused by the fall in commodity prices, the strong dollar and the deterioration of balance sheets in both the private and public sectors."
Hong Kong reclaimed the top spot for the first time since 2012, thanks to the territory's efforts to create a business-friendly environment. In Singapore, investments in infrastructure, especially around shipping, enable it stand up to much larger economies, making it the only other Asian nation in the Top 10.
Switzerland rose two positions to second place, followed by the US in third. Sweden, Denmark, Ireland, the Netherlands, Norway and Canada round out the Top 10.
In Asia, Thailand climbed two spots to 28th while Japan edged up one place to 26th. India moved up from 44th to 41st, thanks to improved overall performance, openness and managerial practices.
Thailand's ascent reflected "two areas of significant improvement: the economy and government efficiency", said Poramatee Vimolsiri, the secretary-general of the National Economic & Social Development Board.
He noted that economic growth increased from 0.7% in politically turbulent 2014 to 2.8% last year while many other countries slowed down, demonstrating resiliency and competitiveness, and this has contributed a lot. Indicators on trade, foreign investment and the exchange rate also showed improvement in the IMD ranking.
Government efficiency also rose four places as authorities stepped up efforts to improve services and enact important laws and regulations. The law and regulation framework ranking improved seven positions. Government policy adaptability and decision-making also improved significantly.
Mr Poramatee said concerns that the Thai economy is slowing down needed to be looked at in a broader context when evaluating competitiveness.
"As I mentioned, when we look at or judge conditions only in the domestic context we may feel that competitiveness and fundamental factors are hard to change and slow because it takes time," he told Asia Focus. "But when we study in detail and compare hard evidence in comparison with others, then we may see how we are achieving [progress] relative to others."
Thailand, he said, would continue to focus on more improvements to raise its profile further.
"A couple of areas on which we will continue to focus and try to accelerate changes are investment in more infrastructure, improving education, and innovation infrastructure. And we aim for even more improvement in government efficiency such as the implementation of the digital government platform," he said.
India was also among the countries rising up the table and currently ranks 26th in terms of image, 11th in openness and 32nd in managerial practice, said Jose Caballero, a senior economist at the IMD.
"Among the BRICS (Brazil, Russia, India, China and South Africa) economies, India has done pretty well," he said but added that the country had a long way to climb in education, health and the environment.
"The government has not provided adequate investment in these three areas," said Mr Caballero, noting India's high economic growth cannot guarantee its overall competitiveness.
The government has to provide resources for the social sector or risk seeing social disparities widen in the coming years, he added.
Prof Bris agreed, saying: "The ranking makes clear year after year that current economic growth is by no means a guarantee of future competitiveness.
"Nations as different as China and Qatar fare very well in terms of economic performance, but they remain weak in other pillars such as government efficiency and infrastructure."
IMD analyses more than 340 criteria derived from four principal factors -- economic performance, government efficiency, business efficiency and infrastructure -- to produce its rankings. Responses from an in-depth survey of more than 5,400 business executives, who are asked to assess the situation in their own countries, are also taken into consideration.
For Thailand, improvement in key criteria such as political stability and policy flexibility are cited as the reasons for the upgrade this year from 30th place in 2015. Improvements include government policy, real GDP growth per capita, exchange-rate stability and decreased risks of political instability. Exports, stock market capitalisation, and tourism receipts continued to decline, however.
Challenges for Thailand this year include accelerating investments in infrastructure megaprojects, and inclusive political, social and education reforms to align with development needs. As well, transport and logistic systems must be upgraded to optimise Asean supply chain links to strengthen competitiveness, said the IMD.
South Korea, on the other hand, declined four notches to 29th place this year due mainly to sluggish economic performance and business efficiency, said the Lausanne-based institute.
In terms of economic achievement and infrastructure, South Korea placed 21st, down six positions from a year earlier, as economic growth contracted to 2.6% after a 3.3% expansion in 2014.
The IMD assessment said that corporate efficiency tumbled by 11 notches amid ongoing corporate restructuring. Consequently, South Korea's labour market, entrepreneurial attitude and management practices received lower ratings.
The country, however, rose to 26th from 28th in government efficiency, the first upgrade in three years. Public finance and fiscal policy also got higher scores.
The finance ministry of South Korea said the poor rating overall was attributable to a slowdown in the economy and employment, corporate restructuring issues and corporate ethics problems.
IMD suggested that the South Korean government carry out structural reforms in the business and labour sectors and map out plans to promote domestic demand and create jobs for young people.
In Australia, favourable labour regulations, government decision-making and fuel prices helped the country rise one spot to 17th. The accompanying survey of Australian business executives cited an effective legal environment as the most attractive feature of the country, while high education levels and the skilled workforce also ranked highly. The county ranks poorly in terms of cost-competitiveness and effective labour relations.
According to Prof Bris, the common pattern among all of the countries in Top 20 is their focus on business-friendly regulations, physical and intangible infrastructure and inclusive institutions.
Hong Kong's consistent commitment to providing a favourable business environment had been central to its ability to defy the region's wider woes.
Like Singapore, Hong Kong is a leading banking and financial hub. The territory encourages innovation through low and simple taxation and imposes no restriction on capital flows, he said.
"It offers a gateway for foreign direct investment in mainland China, the world's newest economic superpower, and enables businesses there to access global capital markets."
Despite losing its top spot, the US still boasts the best economic performance in the world, but many factors are taken into account when accessing competitiveness, noted Prof Bris.
Western European economies have also continued to improve, with researchers highlighting the ongoing recovery from the financial crisis as a key driver.
Prof Bris also acknowledged that data gathered since the first ranking was published more than 25 years ago have underlined concerns about increasing inequality as the rich are getting richer and the poor poorer.
"Since 1995 the world has become increasingly unequal in terms of income differences among countries, although the rate of increase is now slowing," he said.
The wealth of the richest countries has grown every year except for the past two, while the poorer countries have seen some improvement in living conditions since the turn of the millennium.
"Unfortunately, the problem for many countries is that wealth accumulation by the rich doesn't yield any benefits for the poor in the absence of proper social safety nets," he said.
"Innovation-driven economic growth in poorer countries improves competitiveness, but it also increases inequality. This is obviously an issue that demands long-term attention."