The report noted that the state will still be in for some pain before it realizes these longer-term gains.
Employment is expected to grow just 1.6 percent, while unemployment is expected to stay at 11.4 percent through 2011.
The economic growth that does occur will be driven by education, health care, exports and technology.
UCLA's forecast also said November's ballot measure allowing budgets to be passed with a simple majority could make California more attractive to businesses and improve its borrowing costs.
