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


Gavin Newsom is as familiar as anyone with media stories of earthquakes, permanent fires, droughts, homelessness and companies fleeing to California and Texas for a life free of taxes and laws. This is not new. California’s governor recalls a 1994 Time Magazine cover story quoting “a series of tragedies beset the state, forcing Californians to rethink their position and the misery of its fading golden dream. “

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

Not bad. California’s economy has proven to be volatile, first from the pandemic and now from the current inflationary period. So much so, that the Golden State’s gross domestic product is poised to overtake Germany as the fourth largest in the world after the US, China and Japan. It jumps Brazil (No. 7) and France (No. 6) in 2015 and replaced the UK (No. 5) in 2017. Although most of California’s current statistics will not be published until 2023, estimates suggesting that the state may. Germany has caught up, and at least one forecast shows California moving forward by $72 billion when considering the state’s recent growth rate.

California’s situation is most evident in the growing gap between its 379 companies with a market value of at least $1 billion and Germany’s 155 publicly traded companies meeting similar benchmarks. While the California company’s profit and market value reached 147% and 117% in the last three years, Germany achieved a lower profit of 41% and 34%, according to data compiled by Bloomberg. Germany’s GDP growth of $4.22 trillion over California’s $3.357 trillion last year is the lowest on record and is about to disappear, while Europe’s largest economy is expected to grow in 2022 and it will fall in 2023.

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“All of this data continues to disprove the narrative and myth” 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, defined as “the conveyor belt for art.”

The truth is that California outperforms the US and the rest of the world across many industries. That’s especially important in renewable energy, a fast-growing business in California and Germany. The market value of California companies in this business increased 731% in the last three years, or 1.74 times more than their German counterparts, according to data compiled by Bloomberg. Notable examples include Freemont-based Enphase Energy Inc., a provider of solar and storage solutions, up 916%, or more than twice the 410% returned by wind farm operator PNE AG in nearby Cuxhaven. the North Sea of ​​Germany.

The dichotomy between California companies and German companies is often mentioned in their top three companies. California technology hardware, media and software saw sales increase 63%, 95% and 115% three years ago, raising sales prices by 184%, 54% and 58%, data compiled by Bloomberg show. In Germany, healthcare, consumer and industrial products are unchanged with an increase of 43% and a decrease of 2% and 7% in the same period. Sales prices rose 40%, 8% and 10%.

The third growth advantage in the California group is similarly reflected in the comparison of the top ten companies. Google’s parent company Alphabet Inc., Apple Inc. and Visa Inc. will see revenue increase 8% following last year’s 34% increase as they turn $100 of sales into $49 of profit. They increased their work by 10%. Germany, led by SAP SE, Deutsche Telekom AG and Siemens AG, will sell 4% more of their products in 2023, down from the 10% increase in 2021, where they get $44 of profit from $100 any of the market. German workers declined 2% on average, according to data compiled by Bloomberg. Of course, the war in Ukraine has greatly affected Germany.

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However, with only 40 million people, California’s economy dwarfs its weight on the world stage. Job creation was a strong area, with unemployment falling to 3.9% in July, the lowest since data was collected in 1976, before rising to 4.1% in August. The gap that separates 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 fell below Texas (the two largest states for agricultural unemployment). The state’s unemployment rate is higher than Germany’s by almost a percentage point, the highest since February 2020, data compiled by Bloomberg show.

Contrary to popular belief about business inefficiency and the exodus of people 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, from and 70% five years ago. . The 42 companies listed in San Francisco, which the forecast suggests will see a market growth of 14% in 2023 and 2024, are 62% today than at the end of 2018 when London Breed became the first black woman and the 45th mayor of the city. Oakland, home to the third largest port in the state and eighth in the US, 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 Schaaf became the city’s 50th mayor.

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“There’s a reason why people do business here,” Breed said in a Town Hall interview with Bloomberg News earlier this month. “It’s because of talent.” Breed also said he’s hearing about people moving back to the Bay Area. “A lot of those members” who decided “to leave didn’t want to be in a place where they didn’t feel like there was a community, a culture — that’s what San Francisco brings to the table.”

Schaaf, who grew up in Oakland and finished his second term in January, agreed. “We value innovation but we also value diversity and equality,” he told Bloomberg News in an interview in his City Hall office earlier this month. “It’s good to see those values ​​being rewarded economically because California has been hit hard” during the Trump administration.

More from Bloomberg Opinion:

• California’s solar problem gets offshore wind repairs: Liam Denning

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

• Europe’s Coming Crisis. What type will it be?: Tyler Cowen

–With assistance from Shin Pei and Keith Gerstein.

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

Matthew A. Winkler, editor and chief emeritus of Bloomberg News, writes about marketing.

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