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Developed World Facing 'Mission Impossible': Economist

The West is facing a "mission impossible" as it attempts to tackle high unemployment, inflationary pressures and exchange rate tensions, an economist told CNBC.

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"The developed world is facing a policy paradox. It needs inflation to rid itself of debt but deflation to encourage firms to boost production and employment," Karen Ward, senior global economist at HSBC told CNBC Tuesday.

The only way to achieve the best of both worlds would be through a decrease in real exchange rates in the developed economies, she said.

"If we don't do this exchange rate adjustment we are looking at a very long period of stagnant growth, high unemployment and ongoing uncertainty," Ward warned.

The policy of monetary stimulus – quantitative easing – used by both the US and the UK central banks in recent months has the "hidden purpose" of instigating exchange rate decline to the detriment of emerging economies, Ward told CNBC.

"In the developed world we might be using quantitative easing to bring down the currencies as we've seen for the last two years; in the emerging world they don't want to be on the receiving end of that," Ward added.

There have been rising tensions between the US and China with growing momentum in the US for a trade bill against China.

Ward warned that this was unsustainable in the long term and would hamper efforts to restart growth in the global economy.

"This is unsustainable. We keep running into these problems in the global economy and global growth will not recover until we have this rebalancing of the global economy and the exchange rate adjustment is desperately required," Ward said.

She added that the ideal solution would be to have developed economies exercising some patience and the emerging economies seeing their exchange rates appreciate.

However, the political machine could derail this scenario.

Ward said she was worried that impatient politicians, particularly in the US where there is an election next year, will force the issue.

"It would be much better if we were to remain amicable in the global system," she said.