Posted on: Saturday, June 16, 2001

Weak Euro boosts California

Associated Press

The economy of Los Angeles, and the rest of California, has been ranked fifth in the world by a Los Angeles business research group, which converted the economic output of foreign countries into U.S. dollars. Advertiser library photo • Feb. 20, 1998

SACRAMENTO, Calif. — This week's news that California leapfrogged France to become the world's fifth largest economy may make for good cocktail-party conversation, but the change has as much to do with the European Union's weak currency as the state's financial clout.

While California's economy grew by 13.6 percent to $1.33 trillion last year, France suffered from the deteriorating Euro, according to the Los Angeles Economic Development Corp., which created an international stir this week by releasing data showing the new world economic order.

To make an apples-to- apples comparison, the Los Angeles business research group converted the economic output of foreign countries into U.S. dollars. Because the dollar is much stronger than the Euro, the conversion translated into a lower gross domestic product for France.

If not for the unfavorable currency exchange rates, France's listed gross domestic product wouldn't have slipped from $1.43 trillion in 1999 to $1.28 trillion in 2000, allowing California to move into the fifth spot.

"We had kind of a one-two punch working in our favor — tremendous economic growth in California and a weak currency in Europe," said Jack Kyser, chief economist for the Los Angeles Economic Development Corp.

The research group intends to release a statement next week clarifying that California's No. 5 ranking may be short-lived if the Euro recovers this year.

California's economy also is slowing this year amid a downturn in the technology industry that is starting to ripple into other key sectors, such as real estate. If the state's economy grows at all this year, it won't be anywhere near the double-digit rate of 2000, Kyser and other economists say.

"We were still growing during the first five months of this year, but my guess is that before this is all over we will slip below the U.S. growth rate," said Gary Schlossberg, a senior economist for Wells Fargo Capital Management.

The technological innovation and venture capital that fueled the rise of the Internet during the 1990s helped make California an even more imposing economic force. The state surpassed Italy in the rankings of the world's biggest economies in 1999.

At the end of 2000, the only economies larger than California's were: the United States ($9.96 trillion), Japan ($4.61 trillion), Germany ($1.89 trillion) and the United Kingdom ($1.42 trillion).