Switzerland remains the world's most competitive economy, while India dropped two places to 51, according to the World Economic Forum's annual rankings issued on Thursday.
The United States has fallen from second to fourth after losing the top spot last year.
Sweden, in second spot, and Singapore in third leapfrogged the United States in the WEF's Global Competitiveness Report 2010/2011.
Last year the Asian city-state ranked third and Sweden fourth. There were no newcomers in the WEF's top 10, although Germany climbed to fifth from seventh.
The WEF said America slipped in the ranking due to a build-up in U.S. macroeconomic imbalances, a weakening of the country's public and private institutions and concerns about the state of its financial markets.
"There are weaknesses in some areas in particular, which we have discussed for some time before, and they deepened somewhat since last year," Jennifer Blanke, the lead economist of the WEF's Centre for Global Competitiveness and Performance, told a news conference to release the report.
The report said a lack of macroeconomic stability continues to be America's greatest area of weakness, with repeated fiscal deficits leading to burgeoning public indebtedness.
It also said that U.S. business leaders show less trust in politicians and the government's ability to maintain an arm's-length relationship with the private sector.
The WEF bases its assessment on a dozen drivers of competitiveness, including institutions, infrastructure, health and education, market size and the macroeconomic environment.
The report also factors in a survey among business leaders, assessing the government's efficiency and transparency.
Switzerland retained first place thanks to its high capacity for innovation and sophisticated business culture.
Nordic countries continued to do well in the WEF's league table, with Finland and Denmark joining Sweden in the top 10.
China moved up two places to 27th and was the most competitive of the major emerging economies.
"China continues to show great strength, not in terms of the size of the economy but in terms of the quality of the economy," said Robert Greenhill, managing director and chief business officer of the WEF.
He attributed China's climb up the rankings to its large market size, strong macro-economic management and improved financial markets.
"China is moving up the value chain of global competitiveness and in addition it has made great progress in business sophistication and innovation," he added.
The Geneva-based group released the report ahead of a meeting next week in the port city of Tianjin near Beijing.