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


Gavin Newsom knows as well as anyone in the media about earthquakes, constant wildfires, droughts, homelessness, and companies fleeing California to Texas because of tax and deregulated lifestyles. This is not new. Recalling a 1994 Time magazine cover story, California’s governor said, “A slow disaster has rocked the state, forcing Californians to ponder their fate and the fading glimmer of their golden dreams.”

Still, “the California Dream is alive and well,” the state’s 40th governor said in a Zoom interview a month before his re-election bid.

He is not guilty. California’s economy has weathered first the pandemic and now a period of rising inflation, making it relatively resilient. Therefore, the gross domestic product of the Golden State has surpassed that of Germany and ranks fourth in the world after the United States, China, and Japan. It has already leapfrogged Brazil (No. 7) and France (No. 6) in 2015, and joined the UK (No. 5) in 2017. Although most of California’s current figures won’t be released until 2023, estimates suggest the state may have already caught up with Germany, and at least one estimate suggests California will be $72 billion ahead of the state’s recent growth rate.

California’s trajectory is most visible in the growing disparity between the 379 companies with a market capitalization of at least $1 billion and the 155 publicly traded firms based in Germany. California’s corporate earnings and market capitalization rose 147% and 117% over the past three years, respectively, while Germany posted lower gains of 41% and 34%, according to Bloomberg. Germany’s $4.22 trillion nominal GDP gap with California’s $3.357 trillion last year was the lowest in history and is set to disappear, Europe’s largest economy will barely grow in 2022 and 2023 is expected to decrease.

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“All of this data continues to belie the prevailing 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 tenacity, leadership, entrepreneurs, and a half-century-old formula for success,” he said, noting the state’s “conveyor belt for developing talent.”

The truth is that California outstrips the United States and the rest of the world in many areas. This is especially important for the renewable energy sector, which is the fastest growing business in California and Germany. In this business, the market value of Californian companies has grown 731% in the last three years, or 1.74 times that of German companies, according to Bloomberg. Some notable examples include Freemont-based Enphase Energy Inc., a provider of solar energy and storage solutions. is a 916% increase from the 410% returned by PNE AG, a wind farm manufacturer in Cuxhaven along Germany’s North Sea coast.

The difference between Corporate California and Corporate Germany is most evident in their top three sectors. Sales of California tech hardware, media and software have increased 63%, 95% and 115% over the past three years, respectively, boosting market capitalization by 184%, 54% and 58%, according to Bloomberg. In Germany, prices for health care, consumer and industrial products were volatile, rising by 43%, falling by 2% and 7%, respectively. The market price increased slightly by 40%, 8% and 10%.

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California 3’s growth advantage is also reflected in the comparison of the top 10 companies. Google’s parent company Alphabet Inc., Apple Inc., Visa Inc. led by firms turning $100 in sales into $49 in profit, which will see revenue rise 8 percent after last year’s 34 percent increase. They increased employment by 10 percent. Germany, led by SAP SE, Deutsche Telekom AG and Siemens AG, will sell 4% more products in 2023 than 10% growth in 2021, earning $44 per $100 in sales. According to Bloomberg, Germany’s labor force contracted by an average of 2 percent. Of course, Germany had a great influence on the Ukrainian war.

However, with a population of 40 million, 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 records began in 1976, after rising to 4.1% in August. The state has a 3.5% gap across the nation, the lowest since August 2021, and the first time since 2006 that California’s unemployment rate fell below that of Texas (the two largest nonfarm payrolls states). The state’s unemployment rate exceeded Germany’s by almost one percentage point, the highest since February 2020, according to Bloomberg.

Despite the prevailing perception that businesses have been disrupted and people have fled since the start of the Covid-19 pandemic, the San Francisco Bay Area now accounts for 78 percent of the market capitalization of publicly traded companies in California, up from 70 percent five years ago. . 42 San Francisco-listed companies forecast sales growth of 14% in 2023 and 2024, up 62% today from late 2018, when London Breed became the city’s first black woman and 45th mayor. Oakland, the state’s third-largest port and the eighth-largest in the U.S., grew faster (9.9%) month over month than No. 1 Los Angeles (0.3%) and No. 2 Long Beach (8.7%). is ) since 2015, Libby Schaaf has become the city’s 50th mayor.

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“There’s a reason people continue to do business here,” Breed told Bloomberg News in a City Hall interview earlier this month. “It comes down to talent.” Breed also said he’s heard of people moving back to the Bay Area. “Many of the same people who decide to leave don’t want to stay in a place where there’s no community or culture — San Francisco brings that to the table.”

Schaaf, who grew up in Oakland, will finish his second term in January. “We value innovation, but we also value diversity and equality,” he told Bloomberg News in an interview from his City Hall office earlier this month. It’s good to see these values ​​pay off economically in California, which has been heavily criticized under the Trump administration.

More from Bloomberg Opinion:

• California solar solves offshore wind problem: Liam Denning

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

• The European crisis is coming. What kind of thing will it be?: Tyler Cowan

–With assistance from Xin Pei and Keith Gerstein.

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

Bloomberg News Editor-in-Chief Matthew A. Winkler writes about the market.

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