July 20 (Bloomberg) -- The dollar may strengthen in the next 12 months while the U.S. returns to growth in the second half, Goldman Sachs Group Inc. Chief Economist Jim O’Neill said in an interview on Bloomberg Radio. The outlook for the dollar “in the next 12 months is better even though we think the world will do much better than people think,” O’Neill said. “Behind this crisis there are some pretty good things going on for the dollar.” The currency is benefiting from a higher domestic savings rate and an improvement in the trade deficit, including with Japan, and will avoid any sharp decline, he said. The U.S. trade deficit narrowed in May to $26 billion, the lowest level since November 1999. Signs the U.S. labor market is improving suggest the economy may be emerging from the recession, he said. The number of people filing initial claims for unemployment benefits fell to the lowest level since January in the week ended July 11. Jobless claims may be “the most important indicator to watch, and the signs are pretty good,” he said. “We might have seen the worst in the U.S.” To contact the reporters on this story: Jennifer Ryan in London at Jryan13@bloomberg.net; Thomas R. Keene in New York at tkeene@bloomberg.net

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