Israel slipped from 16th place a year ago to 20th place on the latest World Economic Forum's Global Competitiveness Index, released on Tuesday.
The United States, Singapore, Germany, Switzerland and Japan topped the new index, while the African Republic of Chad ranked last, in 140th place.
The index said several factors are impeding the growth of the Israeli economy and have caused its fall in the placings, including its low ranking on indices measuring government bureaucracy (59), the time it takes to open a business in Israel (74), the costs associated with starting a business in Israel (50), and cumbersome business credit application practices (45).
Israel also fell short in indices measuring the complexity of its tariffs and payments system (81), the ease of employing foreign workers (125), maritime and air services (42), the quality of vocational training (37), and government budgetary transparency (90).
All these indicate that there is vast room for improvement in easing the regulatory and bureaucratic burdens in Israel.
Despite this, the index stressed that Israel has been able to maintain its position as the world's No.1 startup nation in terms of investment in research and development companies and the overall approach to entrepreneurial ventures.
Israel ranked 10th in the World Economic Forum's Patent Application Index and second in its Venture Capital Availability Index.
In addition, Israel ranked sixth in the index evaluating the integration of women in the workforce.
The report said that the Middle East and North Africa have been undergoing accelerated economic reforms in recent years, prompted by major economic, social and political shifts.
After something of a "lost decade," the global economic recovery is in full swing and is expected to grow by 4% in both 2018 and 2019, the report said.
However, "today's economy and the business environments remain challenging and complex and economic recovery remains vulnerable to possible risks," it said.
Israeli Manufacturers Association President Shraga Brosh said, "Israel's deterioration in the Global Competitiveness Index should raise a red flag among all senior government officials.
"Unlike what they are trying to sell us, Israel's economic future does not bode well. The economic leadership has to take these indices seriously and take concrete steps to change the situation."