Big issue facing world economy is inflation: Policy expert

The big issue facing the world economy is inflation, which is especially true for the emerging markets, former US President financial market advisor Philippa Malmgren has said.

"In China, the inflation rate exceeds the deposit rates, while India is witnessing higher inflation and the Reserve Bank of India is having to raise interest rates more rapidly than expected. This is due to higher input costs for food, commodities and agriculture," she said.

She further said the challenges facing the world economy include the enormous debt burden of western nations, which is pushing interest rates up in countries like Greece, Portugal and even in the United States.

On the GCC as an economic union she said it will emerge stronger in time.

"What the GCC decides in terms of their currency being linked to the US dollar and the possibility of moving away to a basket of currencies will be paradoxical. The basket of currencies, which includes the euro and sterling are falling, which could expose the GCC to more inflation," she said.

Malmgren has served as an advisor on international economic issues to George W Bush.