California overtakes UK to become world’s fifth largest economy
US state has 25 million fewer people than Britain, which has seen a drop in its economic output due partly to exchange rate fluctuations
California’s economy has surpassed that of the United Kingdom to become the world’s fifth largest, according to new federal data made public on Friday.
California’s gross domestic product rose by US$127 billion from 2016 to 2017, surpassing US$2.7 trillion, the data said. Meanwhile, the UK’s economic output fell slightly over that time when measured in US dollars, due in part to exchange rate fluctuations.
The data demonstrate the sheer immensity of California’s economy, home to nearly 40 million people, a thriving technology sector in Silicon Valley, the world’s entertainment capital in Hollywood and the nation’s salad bowl in the Central Valley agricultural heartland. It also reflects a substantial turnaround since the Great Recession.
“We have the entrepreneurial spirit in the state, and that attracts a lot of talent and money,” said Sung Won Sohn, an economics professor at California State University Channel Islands. “That is why, despite high taxes and cumbersome government regulations, more people are coming into the state to join the parade.”
All economic sectors except agriculture contributed to California’s higher GDP, said Irena Asmundson, chief economist at the California Department of Finance. Financial services and real estate led the pack at US$26 billion in growth, followed by the information sector, which includes many technology companies, at US$20 billion. Manufacturing was up US$10 billion.
California last had the world’s fifth largest economy in 2002 but fell as low as 10th in 2012 following the Great Recession. Since then, the largest US state has added 2 million jobs and grown its GDP by US$700 billion.
California’s economic output is now surpassed only by the total GDP of the United States, China, Japan and Germany. The state has 12 per cent of the US population but contributed 16 per cent of the country’s job growth between 2012 and 2017. Its share of the national economy also grew from 12.8 per cent to 14.2 per cent over that five-year period, according to state economists.
California’s strong economic performance relative to other industrialised economies is driven by worker productivity, said Lee Ohanian, an economics professor at University of California, Los Angeles and director of UCLA’s Ettinger Family Programme in Macroeconomic Research. Britain has 25 million more people than California but now has a smaller GDP, he said.
California’s economic juggernaut is concentrated in coastal metropolises around San Francisco, San Jose, Los Angeles and San Diego.
“The non-coastal areas of CA have not generated nearly as much economic growth as the coastal areas,” Ohanian said in an email.
The state calculates California’s economic ranking as if it were a country by comparing state-level GDP from the Bureau of Economic Analysis at the US Department of Commerce with global data from the International Monetary Fund.