Switzerland retained the top spot for the second year in the annual ranking by the Geneva-based World Economic Forum. It combines economic data and a survey of more than 13,500 business executives.
Sweden moved up to second place while Singapore stayed at No. 3. The United States was in second place last year after falling from No. 1 in 2008.
The WEF praised the United States for its innovative companies, excellent universities and flexible labor market. But it also cited huge deficits, rising government debt and declining public faith in politicians and corporate ethics.
"There has been a weakening of the United States' public and private institutions, as well as lingering concerns about the state of its financial markets," the group said.
Mapping a clear strategy for exiting the huge U.S. stimulus "will be an important step in reinforcing the country's competitiveness," it said.
The report was released in Beijing ahead of a WEF-organized gathering of global business executives next week in neighboring Tianjin. The group is best known for its annual Davos meeting of corporate leaders.
The report ranks 139 countries by assessing business efficiency, innovation, financial markets, health, education, institutions, infrastructure and other factors.
The United States was followed by Germany, Japan, Finland, the Netherlands, Denmark and Canada.
Switzerland held its top rank due to its strong innovation, evenhanded regulation and one of the world's most stable economic environments.
The WEF cited education and regulation as key areas for improvement in a number of economies and warned leaders not to lose sight of long-term needs as they struggle with the global crisis.
"For economies to remain competitive, they must ensure that they have in place those factors driving the productivity enhancements on which their present and future prosperity is built," one of the report's co-authors, Columbia University economist Xavier Sala-i-Martin, said in a statement.
China performed best among major developing economies, rising two places from last year to 27th based on its large and growing market, economic stability and increasing sophistication of its businesses.
Japan gained two places, helped by strong innovative abilities, though its status was hurt by the country's two-decade-old financial malaise.
Greece plunged 12 places to 83rd, plagued by a debt crisis and mounting public concern about corruption and government inefficiency, according to the WEF.
Associated Press Writer Frank Jordans in Geneva contributed