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US, UK climb competitiveness ranks; Germany falls

The United States has climbed further up the ranks of the world's most competitive economies, the World Economic Forum said in its annual report.

The world's biggest economy climbed two positions in the competitive rankings, to grab third place behind Switzerland and Singapore—marking its second year of gains.

"U.S. companies are highly sophisticated and innovative, and they are supported by an excellent university system that collaborates admirably with the business sector in R&D," the WEF said, in a report led by Chairman Klaus Schwab.

"Combined with flexible labor markets and the scale opportunities afforded by the sheer size of its domestic economy—the largest in the world by far—these qualities make the United States very competitive."

U.S. factory worker
Thomas Barwick | Stone | Getty Images
U.S. factory worker

Downsides to doing business in the U.S. include its macroeconomic environment, which the WEF described as the country's "greatest area of weakness."

The U.S. economy will expand by 2.6 percent this year, the Organization of Economic Cooperation and Development forecast in May. This is just above the expected average for developed countries of 2.2 percent, but below the global estimate of 3.4 percent.

Read MoreAmerica's Top States for Business 2014

The U.K. also gained in competitiveness this year, coming in at ninth place, and Japan posted the largest improvement of the top 10 economies, reaching sixth place.

Like the U.S., Japan and Britain have adopted monetary stimulus measures known as quantitative easing to boost economic growth and stem the risk of deflation.

Read MoreEuropean bank officials weigh QE 'shock and awe'

Regarding Japan, the WEF said: "At least the country's battle against deflation has started bearing fruit: prices in 2013 increased for the first time in five years—by a low 0.4 percent."

In other countries, Germany's relative competitiveness declined, and falls for Finland and Sweden relaxed the grip that Scandinavia has held on WEF's top 10 in recent years.

Read MoreWhy Japan's economy is stuck in 'no man's land'

The report noted that Germany had weathered the global economic crisis of 2007/08 "relatively well," but its education system slipped due to lower-than-expected university enrollment.

Recent data have suggested Germany's place as the economic "strongman" of Europe is slipping. On Monday, Markit's purchasing managers' index showed that German industrial production only expanded narrowly in August, at its slowest rate in 11 months.

Read MoreEuro zone manufacturing slows to 13-month low

Here are the WEF's top 10 rankings for competitiveness:

  1. Switzerland
  2. Singapore
  3. United States
  4. Finland
  5. Germany
  6. Japan
  7. Hong Kong
  8. Netherlands
  9. United Kingdom
  10. Sweden

In Europe, the WEF found that several countries severely hit by the global financial crisis of 2007/08, such as Spain (ranked 35th), Portugal (36th) and Greece (81st), had made significant strides in competitiveness.

Other countries in the region, such as France (23rd) and Italy (49th), had made less progress. "While the divide between a highly competitive North and a lagging South and East persists, a new outlook on the European competitiveness divide, between countries implementing reforms and those that are not, can now also be observed," said Schwab.

More than half of the WEF's 20 lowest ranked countries were in sub-Saharan Africa, due to the region's "profound" lack of infrastructure and low levels of health and basic education. Ebola-hit Guinea in the west of the continent was judged the world's least competitive country.

Here's the WEF's 10 least competitive countries:

  1. Guinea
  2. Chad
  3. Yemen
  4. Mauritania
  5. Angola
  6. Burundi
  7. Sierra Leone
  8. Haiti
  9. Timor-Leste
  10. Burkina Faso

—By CNBC's Katy Barnato