Sovereign wealth funds could eclipse U.S. output-report

By Peter Apps

LONDON, April 28 (Reuters) - Fuelled by resource income, state sovereign wealth funds from China to Africa are reshaping the global economy and at their current growth rate will surpass current U.S. economic output by 2015, a report said on Monday.

By 2016, analyst group Global Insight said the funds, which grew 24 percent a year in the last three years, would outstrip the current output of the European Union -- which has become the world's largest economy due to the recent decline in the value of the dollar.

China, Russia and Kuwait were the owners of the largest funds, the report said -- but with others including African oil-rich countries once more associated with instability and conflict following rapidly behind.

Their growth may effectively reverse the trend in which rich western investors put money into emerging markets by making developed economies more dependent on emerging market cash. Even if growth slowed, they would likely eclipse the United States within a decade, the group said.

"There has been a shift of financial weight from west to east, particularly to China, Asia, the Middle East and other energy countries," said Jan Randolph, Global Insight head of sovereign risk.

"Riding the energy and commodities boom, together with the wilting dollar, sovereign wealth funds will continue to be the key players in the changing financial landscape of the global economy thrown into flux by the credit crunch."

The report put the combined value of sovereign wealth funds and $3.5 trillion in 2007, more than enough to match the established economies of Britain, Germany or France.

Rising Chinese and Asian demand for commodities has seen prices soar, with oil within sight of a once unthinkable $120 a barrel on Monday. Many oil-producing states pegged their budgets assuming a much lower price of perhaps $50-$60 this year, banking the difference in their wealth funds.