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


Gavin Newsom is as familiar as the media with earthquakes, wildfires, droughts, homelessness, and companies fleeing California to Texas for a tax- and regulation-free lifestyle. This is nothing new. California’s governor recalled a 1994 Time magazine cover story that said “a series of disasters rock the state, leaving Californians wondering about their fortunes and the fading glow of their golden dream.” Forced to consider.”

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 in the current era of high inflation. So much so that the Golden State’s gross domestic product is poised to overtake Germany as the fourth largest country in the world behind the US, China and Japan. It had already overtaken Brazil (No. 7) and France (No. 6) in 2015 and replaced the United Kingdom (No. 5) in 2017. Although many of California’s current figures won’t be published until 2023, estimates suggest the state has already caught up with Germany, with at least one forecast considering the state’s recent growth rate of $72 billion. It’s ahead.

California’s pace is most transparent in the growing gap between its 379 companies with a market value of at least $1 billion and 155 publicly traded firms based in Germany. While corporate California’s revenue and market capitalization grew by 147% and 117% over the past three years, Germany posted modest gains of 41% and 34%, respectively, according to data compiled by Bloomberg. Germany’s nominal GDP margin of $4.22 trillion compared to California’s $3.357 trillion last year was the smallest on record and is set to close, with Europe’s largest economy barely growing in 2022 and shrinking in 2023. There is prediction.

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“All of these statistics belie the dominant narrative and illusion that California’s ‘best days are behind us,'” Newsom said. Proud of its success formula that spans half a century,” he said, highlighting the state’s “conveyor belt for talent”.

The truth is that California outperforms the US and the rest of the world in many industries. This is particularly relevant with renewable energy, which is the fastest growing business in California and Germany. According to data compiled by Bloomberg, the market capitalization of California companies in the business grew 731 percent over the past three years, or 1.74 times that of their German counterparts. Notable examples include Freemont-based Enphase Energy Inc. Inc., a solar and storage solution provider, is up 916% from 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 three top industries. California technology saw sales of hardware, media and software grow 63%, 95% and 115% over the past three years, driving market prices up 184%, 54% and 58%, data compiled by Bloomberg show. . In Germany, healthcare, consumer discretionary and industrial products were uneven with 43% growth and 2% and 7% declines over the same period. Market prices increased marginally by 40%, 8% and 10%.

California’s three-to-one growth advantage is similarly reflected in the top 10 companies. The firms, led by Google parent Alphabet Inc., Apple Inc. and Visa Inc., will see revenue rise 8% after last year’s 34% rise as they turn $100 in sales into $49 in profit. He increased his 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 making $44 in profit for every $100 in sales. The German workforce shrank by an average of 2 percent, according to data compiled by Bloomberg. Of course, Germany has been deeply affected by the war in Ukraine.

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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 U.S. national rate of 3.5% is the narrowest since August 2021, and for the first time since 2006, California unemployment is below Texas (the top two states for non-farm payrolls). . The state’s unemployment rate similarly outpaced Germany by nearly one percentage point, the highest since February 2020, data compiled by Bloomberg show.

Contrary to the prevailing perception of business inactivity and layoffs 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 five years ago. was 70%. . San Francisco’s 42 listed companies, which are forecast to see sales grow by 14% in 2023 and 2024, are up 62% today from the end of 2018 when London Bread became the city’s first black-listed company. She became the 45th female mayor. Oakland, home to the state’s third-largest port 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%). Is. ) 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,” Nasl said in a City Hall interview with Bloomberg News earlier this month. “It’s because of the talent.” Brad also said she’s hearing about people moving back to the Bay Area. “A lot of the same people” who “have 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.”

Schaaf, who grew up in Oakland and is completing 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 these values ​​rewarded economically because California has been so maligned during the Trump administration,” he said.

More from Bloomberg Opinion:

• California’s Solar Problem Out of Sea Wind: Liam Denning

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

• A European crisis is coming. What kind would it be?: Tyler Cowan

–With assistance from Shin Pei and Keith Gerstein.

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

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

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