Domestic politics will be a higher risk to the country's economic growth this year, says Standard Chartered Bank.
The Preah Vihear dispute, the constitution charter amendment and several political disputes look set to affect the government's stability this year, said Usara Wilaipich, senior economist at Standard Chartered Thailand.
Standard Chartered Bank forecast Thailand's gross domestic product (GDP) growth at 4% this year.
The National Economic and Social Development Board projected a GDP of 5-5.5%, while the Bank of Thailand estimated 4.6%.
"Political factors were the key reason for our lower rate," said Ms Usara.
Much of the growth will be driven by government spending, particularly for water management and infrastructure schemes, she added. But those projects require approval through several special bills, which rely heavily on political wrangling.
Ms Usara said private investment and consumption is expected to decelerate this year after strong growth last year.
Also, the central bank's personal loan regulations will slow typical finance this year despite low interest rates, she added.
Ms Usara said the Monetary Policy Committee's (MPC) unanimous decision yesterday to maintain its policy rate at 2.75% was expected, but Standard Chartered expected the central bank to increase the policy rate by 25 basis points by the second quarter of the year.
"Global interest rates should gradually increase over the next two to five years," she said.
The foreign exchange rate will play an increasing role in the central bank's decision to adjust its policy rate, as the baht continues to appreciate with rising capital flows, she added.
Thailand's net capital flow now is higher than the current account surplus, Ms Usara noted.
The likelihood the MPC will cut the policy rate this year has dipped following improving growth from both exports and domestic demand, she said.
Consumer and business confidence, strong household income and an easy monetary policy the past year bolstered economic growth during the last three months of 2012, surpassing expectations, said the MPC in a statement.
The MPC added exports have begun to show signs of a broad-based recovery from the plunge in demand following the euro-zone debt crisis, while the service and tourism sectors expanded.
Paiboon Kittisrikangwan, a central bank assistant governor, said the daily minimum wage hike has spurred higher household income. Low unemployment increased job confidence, he added.
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Writer: Parista Yuthamanop & Somruedi Banchongduang