Published: Thursday, 29 Oct 2009 | 7:59 AM ET

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The global economy still faces major hurdles on its path to recovery, such as the ballooning public deficits and weak consumer spending, and investors remain cautious until they're resolved, Barclays President Bob Diamond told CNBC.

CNBC.com Bob Diamond

"There's still caution around the challenges we face in the global economy," Diamond said in Singapore Thursday.

The issues impacting the U.S. recovery include the public deficit, concerns over consumer spending and the questions over health-care reform, he said.

Even though concerns over the economy remain, Diamond is now "more comfortable that the financial system is on firm ground."

The economy has bounced strongly off the bottom, according to Diamond. Focus is now shifting to much bigger issues including regulatory reform, consumer spending, deficits and tax rates, he said.

Resolving those issues is central to how investors view the strength and the nature of the current recovery, according to Diamond.

"I think the sense people have is that while we have economic recovery it's not yet clear how strong it will be and how sustainable it will be," he said. 

Diamond said that the speed of the recovery so far has been surprising and he is no longer dealing with the financial crisis on a day-to-day basis.

"A year ago, we were dealing with day-to-day crises and we were lurching from immediate issue to immediate issue," he said. "I think the feeling here is we moved from worrying about the day-to-day."

Regulatory Reform is Critical

The regulatory reform in the wake of the financial crisis is critical to job creation and sustainable global economic growth, Diamond told CNBC.

"The goals that we all have are very, very clear. We want a safe and sound financial system. We want banks that are confident strong and willing to take risk … in support of international trade and cross-boarder flows," he said.

Without those two conditions, Diamond doesn't see "any chance for job creation or stronger and sustainable global economic growth."

Meanwhile, the UK and Europe are lagging behind Asia in terms of recovery, according to Diamond.

"Clearly Asia has been in recovery the longest, since early in the second quarter, so I don't want to understate the positive nature of the mood," he said.

- Watch highlights from Bob Diamond's exclusive CNBC interview above.

Barclays is investing heavily in Japan and Diamond thinks the country "really sticks out in terms of the economies in Asia." Japan has a "very sophisticated, very deep and very developed domestic capital market," he said.

Having a developed domestic capital market is key because there's a clear link between the strength of an economy and the strength of the domestic capital market, he said.

"One of the reasons we're investing as heavily as we are throughout Asia is we're seeing that kind of development in China, in India, in Singapore, in Australia, in Korea," he said.

On the issue of capping pay and bonuses in the banking sector, Diamond said that there was no clear connection between executive compensation and excessive risk taking.

• Slideshow: Biggest Debtor Nations

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