Prospects for developed economies, which were at the center of the financial boom and bust, continue to be weighed down by banking sector restructuring and high consumer debt as the new year progresses. But the robust recovery in developing economies is remarkable and a prime source for global economic growth. The World Bank issued Global Economic Prospects 2011, which outlines several pitfalls might jeopardize the world economy this year. Edited excerpts follow:

Economic activity in most developing countries has, or is close to, recovered. Supported by a resurgence in international and domestic financial flows and higher commodity prices, most of the spare capacity in developing countries that was created by the crisis has been reabsorbed. Developing countries have regained trend growth rates close to those observed in the pre-crisis period.

In contrast, the recovery in many high-income countries, and several economies in developing Europe and Central Asia, has not been strong enough to make major inroads into high unemployment and spare capacity.

Global growth is expected to weaken somewhat in 2011 before picking up in 2012. Real GDP is estimated to have expanded by 3.9 percent in 2010, once again led by strong domestic demand in developing countries. Restructuring and rightsizing in the banking and construction sectors, combined with necessary fiscal and household consolidation, will continue to drag growth in many high-income economies and developing countries in Europe and Central Asia. At the same time, growth is projected to slow in other developing countries due to emerging capacity constraints.

Overall global GDP is expected to grow 3.3 percent in 2011, before picking up to 3.6 percent in 2012 as the drag on activity from restructuring in high-income countries eases somewhat.

Strong growth of domestic demand in developing country will continue to lead the world economy. Developing countries' domestic demand is playing a major role in the recovery and represented 46 percent of global growth in 2010. GDP in low- and middle-income countries expanded 7 percent in 2010 (5.2 percent excluding India and China) and is projected to increase 6.0 and 6.1 percent in 2011 and 2012, respectively. As such, it will continue to outstrip growth in the high-income countries, projected at 2.8 percent, 2.4 percent and 2.7 percent in 2010, 2011 and 2012, respectively.

Serious tensions and pitfalls persist in the global economy, which in the short run could derail the recovery to differing degrees. These include the possibilities: Market concerns over debt sustainability in Europe escalate; continued low interest rates in high-income countries once again prompt large and volatile flows of capital toward developing countries that contribute to destabilizing movements in exchange rates, commodity prices and asset-prices; although real food prices in most developing countries have not increased as much as those measured in U.S. dollars, they have risen sharply in some poor countries and will continue to do so; and if international prices continue to rise, affordability issues and poverty impacts could intensify.

Longer-term risks center around the possibility that policy in the economies most directly hit by the crisis fails to shift focus from short-term crisis management toward measures addressing underlying, difficult to resolve, structural issues that contributed to the crisis in the first place. These include: putting in place credible plans for restoring fiscal sustainability; placing more emphasis on fiscal measures that facilitate the re-employment of displaced workers; programs, in many countries, to improve longer-term competitiveness; completing the re-regulation of the global financial sector; pursuing policies that permit exchange rates to gradually adjust in line with relative fundamentals; and reducing the volatility of major reserve currencies in order to sustain confidence in them as stores of value and facilitators of trade.