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


Gavin Newsom is all too familiar with the media narrative of earthquakes, frequent wildfires, drought, homelessness and companies fleeing California to Texas for a tax- and regulation-free lifestyle. This is not a new thing. California’s governor recalled a 1994 Time magazine cover story in which “a series of disasters rocked the state, forcing Californians to ponder their fate and the fading glow 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 re-election bid.

He is not wrong. California’s economy has proven relatively resilient, first through the pandemic and now through the current period of high inflation. So much so, that the Golden State’s gross domestic product is poised to overtake Germany as the world’s fourth largest, behind the US, China and Japan. It had already overtaken Brazil (No. 7) and France (No. 6) in 2015 and replaced the UK (No. 5) in 2017. Although many of California’s current statistics won’t be published until 2023, estimates suggest the state has already caught up with Germany, with at least one forecast considering the state of California’s recent growth rate to surpass $72 billion. is

California’s move to meet a similar benchmark among 379 companies with a market value of at least $1 billion and 155 publicly traded firms based in Germany is the most transparent. While corporate California’s revenue and market capitalization have grown 147% and 117% over the past three years, Germany has posted modest gains of 41% and 34%, according to data compiled by Bloomberg. Germany’s marginal GDP of $4.22 trillion compared to California’s $3.357 trillion last year was the smallest by a margin on record and is set to disappear, with Europe’s largest economy barely growing in 2022 and forecast to shrink in 2023.

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“All of this data continues to give the lie to the dominant narrative and illusion that California’s “best days are behind us,” Newsom said. “As someone who grew up in California, I’m proud of California’s resilience, its leadership, its entrepreneurs, its formula for success that goes back more than half a century,” he said, highlighting the state’s “conveyor belt for talent.” said while doing

The truth is that California outperforms the US and the rest of the world in many industries. It is particularly concerned with renewable energy, the fastest growing business in California and Germany. According to data compiled by Bloomberg, the market capitalization of Californian companies in this business has grown 731% over the past three years, or 1.74 times that of their German counterparts. Notable examples include Fremont-based Enphase Energy Inc., a solar and storage solutions provider, up 916%, or more than double the 410% returned by wind-farm maker PNE AG in Cuxhaven along Germany’s North Sea coast.

The contrast between corporate California and corporate Germany is most pronounced in their top three industries. California technology hardware, media and software saw sales grow 63%, 95% and 115% over the past three years, boosting market values ​​by 184%, 54% and 58%, data compiled by Bloomberg show. In Germany, healthcare, consumer discretionary and industrial products were volatile with 43% growth and declines of 2% and 7% over the same period. Market values ​​increased marginally by 40%, 8% and 10%.

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California’s three-to-one growth advantage is similarly reflected in comparisons to the top 10 companies. Google parent Alphabet Inc., Apple Inc. and Visa Inc. Firms led by will grow revenue by 8% after last year’s 34% increase as they turn $100 in sales into $49 in profit. They have increased their employment by 10%. Germany, led by SAP SE, Deutsche Telekom AG and Siemens AG, will sell 4% more of its products in 2023, down from a 10% increase in 2021, while generating $44 in profit from every $100 in sales. According to data compiled by Bloomberg, the German workforce fell by an average of 2%. Germany, of course, has been badly affected by the war in Ukraine.

Yet, with just 40 million people, California’s economy punches above its weight globally. Job creation is a particularly strong area, with unemployment falling to 3.9% in July, the lowest since data were compiled in 1976, before rising to 4.1% in August. The gap separating the state from the US national rate of 3.5% is the narrowest since August 2021, and for the first time since 2006, California unemployment has fallen below that of Texas (the top two states for non-farm payrolls). The state’s unemployment rate similarly outpaced Germany’s by about a percentage point, the highest since February 2020, data compiled by Bloomberg show.

Contrary to popular perceptions of business dysfunction and an exodus since the start of the Covid-19 pandemic, the San Francisco Bay Area accounts for 78% of the market capitalization of all publicly traded companies in California, up from 70% five years ago. is more . San Francisco’s 42 listed companies, which are forecast to see sales grow 14% in 2023 and 2024, are up 62% today from the end of 2018, when London Breed became the city’s first black woman and 45th mayor. Oakland, home to the third-largest port in the state and the eighth-largest in the U.S., grew at a faster monthly rate (9.9%) than No. 1 Los Angeles (0.3%) and No. 2 Long Beach (8.7%). . ) since 2015 when Libby Schaff 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 Hall interview with Bloomberg News earlier this month. “It’s because of talent.” Breed also said she is hearing about people moving back to the Bay Area. “Many of the same people” who “decided to leave, don’t want to live in areas where they don’t feel like there’s a community, a culture — that’s what San Francisco brings to the table.”

Schaff, who grew up in Oakland and completes his second term in January, agrees. “We value innovation but we also value diversity and equity,” he told Bloomberg News in an interview in his City Hall office earlier this month. “It’s nice to see those values ​​rewarded financially because California was so embarrassed during the Trump administration.”

More from Bloomberg Opinion:

• California solar solves onshore wind problem: Liam Denning

• Downtown San Francisco can’t shake working from home: Justin Fox

• A European crisis is coming. What Kind Will It Be?: Tyler Cowen

–With assistance from Shin Pei and Keith Gerstein.

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

Matthew A. Winkler, editor-in-chief of Bloomberg News, writes about markets.

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