California Poised to Overtake Germany as World’s No. 4 Economy


Gavin Newsom is as familiar as anyone with media reports of earthquakes, wildfires, droughts, homelessness, and companies fleeing California to Texas for a tax- and regulation-free lifestyle. This is nothing new. California’s governor recalls a 1994 Time magazine cover story citing “a series of natural disasters rocking the state, forcing California to consider its destiny and the glimmer of its golden dream.”

And yet, “the California dream is still alive and well,” the state’s 40th governor said in a Zoom interview a month before his potential election.

He is not wrong. California’s economy has been relatively resilient, first through the pandemic and now in the current period of inflation. So much so that the Golden State’s GDP is poised to overtake Germany as the fourth largest in the world after the US, China and Japan. It had already overtaken Brazil (#7) and France (#6) in 2015 and replaced Britain (#5) in 2017. Although many of California’s current numbers won’t be released until 2023, estimates suggest the state may have already caught up with Germany, and at least one projection means California is $72 billion ahead when considering the state’s recent growth rate.

California’s trajectory is more transparent in the growing gap between its 379 companies with a market value of at least $1 billion and 155 public companies based in Germany. While California corporate earnings and market capitalization grew 147% and 117% over the past three years, Germany posted 41% and 34% lower gains, according to Bloomberg. Germany’s nominal GDP margin of $4.22 trillion against California’s $3.357 trillion last year was the smallest on record and is on track to disappear, with Europe’s largest economy barely growing in 2022 and forecast to contract in 2023. will find

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“All of this data gives the lie to the prevailing narrative and illusion that ‘California’s best days are behind us,'” Newsom said. , which goes back more than half a century, I am proud,” he said, emphasizing the “conveyor belt of talent” in the state.

The truth is that California is superior to the US and the rest of the world in many areas. This is especially true of renewable energy, the fastest growing business in California and Germany. According to Bloomberg, the market capitalization of Californian companies in this business has increased by 731% or 1.74 times compared to their German counterparts in the last three years. Highlights Freemont Enphase Energy Inc., a solar and storage solutions provider, returned 916%, or more than 410%, by wind farm manufacturer PNE AG in Cuxhaven on Germany’s North Sea coast.

The dichotomy between corporate California and corporate Germany is most evident in their top three industries. California-based tech equipment, media and software companies have seen sales grow 63%, 95% and 115% in the past three years, while increasing their market value by 184%, 54% and 58%, respectively, according to data compiled by Bloomberg. In Germany, healthcare, consumer discretionary and industrial products were uneven with 43% growth and 2% and 7% declines in the same periods. Market values ​​rose slightly by 40%, 8% and 10%.

California’s three-to-one growth advantage is reflected in a similar comparison of the top 10 companies. Companies owned by Google’s parent Alphabet Inc., Apple Inc. and led by Visa Inc., revenues will rise 8% after a 34% increase last year as they turn $100 in sales into $49 in profit. They increased their work by 10 percent. Germany, led by SAP SE, Deutsche Telekom AG and Siemens AG, will sell 4% more products in 2023, down from 10% growth in 2021, and earn $44 per $100 in sales. According to Bloomberg, the number of German workers fell by an average of 2%. Of course, Germany was badly affected by the war in Ukraine.

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However, with only 40 million people, California’s economy punches above its weight on the world stage. Job creation is a particularly strong area, with the unemployment rate falling to 3.9% in July, the lowest since data were compiled in 1976, before falling to 4.1% in August. The gap separating the state from the U.S. national rate of 3.5% is the narrowest since August 2021, and for the first time since 2006, unemployment in California fell behind Texas (the two largest states for non-state wages). The state’s unemployment rate was similarly about one percentage point higher than in Germany, the highest since February 2020, data compiled by Bloomberg show.

Contrary to the prevailing perception of business disruption and exodus since the start of the Covid-19 pandemic, the San Francisco area accounts for 78% of the market capitalization of all publicly traded companies in California, up from 70% five years ago. . The 42 listed San Francisco companies, which are forecast to see sales growth of 14% between 2023 and 2024, are up 62% today from late 2018, when London Breed became the city’s first black woman and 45th mayor. Oakland, home to the state’s third-largest port and eighth-largest in the U.S., grew at a faster monthly rate (9.9%) than #1 Los Angeles (0.3%) and #2 Long Beach (8.7%). . ) since 2015, when Libby Schaaf became the city’s 50th mayor.

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“There’s a reason people continue to do business here,” Breed said in a city interview with Bloomberg News earlier this month. “It’s because of the talent.” Breed also said she hears of people moving back to the Bay Area. “A lot of people who decide to leave don’t want to stay in places where they don’t feel like there’s community and culture — which is exactly what San Francisco brings to the table.”

Schaaf, who grew up in Oakland and will finish his second term in January, agrees. “We value innovation, but we also value diversity and fairness,” he told Bloomberg News in an interview in his mayor’s office earlier this month. “It’s good to see those values ​​being rewarded economically because California has been so criticized under the Trump administration.”

More from Bloomberg Opinion:

• California’s solar problems are being fixed by offshore wind: Liam Denning

• Can’t work from home in downtown San Francisco: Justin Fox

• The European crisis is coming. What will it look like?: Tyler Cowan

–With assistance from Shin Pei and Keith Gerstein.

This column does not necessarily reflect the opinion of the editorial staff or Bloomberg LP and its owners.

Matthew A. Winkler, managing editor of Bloomberg News, writes about the markets.

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