"The new fall in the competitiveness rankings does not mean that we are now worse than we were a year ago, but that others made faster progress than we did, which means that we need to step up reforms," NVK president Ivica Mudrinic said.

Switzerland remained the most competitive country in the world, followed by Singapore, Finland, Sweden, the Netherlands, Germany and the United States.

Croatia saw a considerable drop in infrastructure (44th) and technological readiness (50th). It ranked 60th with regard to health and primary eduction and stagnated with regard to higher education (56th), goods market efficiency (114th) and market size (71st). The rankings of financial market, business sophistication and institutions declined to 92nd, 96th and 98th positions respectively. It ranked 74th for innovation and 106th for labour market efficiency.

Croatia scored best for road and infrastructure quality, number of fixed telephone lines and Internet use, and received the lowest grades for agricultural policy costs, legal framework for foreign investment, extent and effect of taxation, and efficiency of legal framework in settling disputes.

Croatia's overall ranking is the result of the situation in the country at the beginning of the year when the new government had only just started to implement its policy, Education, Science and Sport Minister Zeljko Jovanovic said, adding that the report gave a true diagnosis of the situation in the country at the time.

These figures are important because they show what steps should be taken to remedy the situation, and it is our obligation in our four-year term to make it into the top 50 most competitive countries, Jovanovic said. He cited Poland as an example, which progressed from 53rd position in 2008 to 41st, while at the same time Croatia dropped from 61st place in 2008 to 81st.

The chairman of the Management Board of the Privredna Banka Zagreb bank, Bozo Prka, said that regardless of the growing crisis and the fall in competitiveness Croatia should not lose its investment rating because it still had good macroeconomic indicators, its public debt was not too high and it had begun to implement the necessary reforms.

"We still have a governable economy that is in better condition than those of some countries with better credit ratings," Prka said. He, however, warned that the government should urgently change its industrial policy because it was still granting large subsidies to sectors "that went bankrupt 15 years ago" instead of investing in productive sectors that could kickstart growth.