The rankings, published annually since 1989, assess 61 countries according to 340 criteria covering economic performance, government efficiency, business efficiency and infrastructure.
With the US in third, Singapore took fourth and Sweden fifth, making it the second most competitive in Europe after Switzerland.
Denmark, Ireland, the Netherlands, Norway and Canada completed the top ten.
Last year Switzerland’s economy suffered due to the strength of the franc, which was unpegged from the euro in January 2015. But on Monday IMD director Arturo Bris said the country’s small size and commitment to quality have allowed it to react quickly to keep its economy on top.
Though only placing 10th for economic performance, Switzerland scored highly in all other areas, ranking second for government efficiency.
“The common pattern among all of the countries in the top 20 is their focus on business-friendly regulation, physical and intangible infrastructure and inclusive institutions,” added Bris
The report identified several challenges faced by Switzerland this year, not least the country’s attempt to preserve bilateral relations with the EU whilst implementing curbs on immigration agreed by the public in 2014.
The country must also adjust to changes brought about by the strong franc, strength competition domestically and reconcile its energy and environmental policies with economic objectives, said the report.
In September Switzerland topped another competitive study by the World Economic Forum, ahead of Hong Kong, in a report that praised the country’s innovation, efficient labour market and transparent public institutions.
Data gathered for the IMD’s annual study over the past 25 years ago lend weight to fears that the rich are getting richer and the poor poorer, said Professor Bris.
“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.
“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.
“Innovation-driven economic growth in poorer countries improves competitiveness, but it also increases inequality. This is obviously an issue that demands long-term attention.”