Recovery Will Be Stronger than Forecast: Jim O'Neill

The global economic rebound is likely to be even stronger than many have anticipated and developed markets have the potential to outperform emerging markets, Jim O'Neill, head of global economic research at Goldman Sachs, told CNBC Tuesday.

"I think what we've seen since the turn of the year… is actually really strong," O'Neill told "Worldwide Exchange."

The Institute for Supply Management's manufacturing index was more than 2 percentage points higher in December than November, coming in at 55.9, data showed Monday.

Elsewhere, manufacturing in the euro zone and the UK, as well as in some Central European countries, showed signs of strength.

South Korea's economic data is "on fire," and so is China's purchasing managers index, O'Neill said.

"We're looking at world growth stronger than we're forecasting really," he said.

Hopeful for US

Goldman Sachs analysts estimate that the world economic growth will be 4.4 percent this year and 4.5 percent in 2011.

Investors should be "really hopeful" about the US economy, after Monday's ISM survey results, according to O'Neill.

In the first few months of the year, there is likely to be more improvement in the world's developed markets, led by the US, than in the emerging markets, he predicted.

For Clive McDonnell, a regional strategist at BNP Paribas Securities, the key issue is what is already priced into the markets and in the case of the US and the developed markets not all the good news is priced in.

But "the year is not going to be as straightforward for investors as last year" because of increased fears of exit strategies to deal with the huge quantity of liquidity that central banks flooded the markets to fend off a collapse of the global economy, McDonnell said.

But recent statements by Federal Reserve officials should dispel fears of swift monetary tightening, he added.

"It looks like you've got an environment with stronger than expected growth, with policy makers at least in the West still saying 'we're not doing anything guys, go ahead and party,'" McDonnell said.

- Watch the full interview with Jim O'Neill above.

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