Even though the Thai economy grew at a faster pace than expected for the nine months to September and is headed for 4% growth for the full year, policymakers and economists have painted a picture of cautious optimism for next year's outlook because of the many challenges lying ahead.
GDP in the third quarter grew at its fastest pace since the first quarter of 2013, while the economy grew 3.8% year-on-year for the first nine months. That gain was largely thanks to a healthy 9.7% bump in exports for the first 10 months, state investment and tourism.
With the robust growth, the National Economic and Social Development Board expects the economy to expand 3.9% for 2017, in line with the Bank of Thailand and Fiscal Policy Office's estimates of 4% growth. Thailand has not grown at such a fast pace since 2012, but that level is achievable if strong export expansion continues the rest of this year.
But the ongoing pickup in growth has fallen short of delivering sustained and inclusive gains needed to tackle economic, financial, institutional, political and social challenges.
Low-income earners and small and medium-sized enterprises (SMEs) have not enjoyed the benefits of the economic recovery as high household debt, soft crop prices and cautious spending have dampened their purchasing power and consumption.
Tailwinds
The Bank of Thailand does have reason to be cheerful for the year ahead.
Somchai: Sees GDP growth exceeding 4%
The Monetary Policy Committee (MPC) upgraded its economic growth outlook to 3.9% for this year and next at its end of the year meeting, up from 3.8% predicted in September.
Exports, tourism and state investment will be the main growth drivers for 2018, though the rate-setting committee predicted that merchandise shipments will expand 4% compared with 9.3% forecast for 2017, due to the larger base effect.
Next year's growth could be higher than forecast if government investment projects are implemented as planned, said the central bank.
Private consumption will continue to expand, albeit at a gradual pace, given that improvements in income might not be sufficiently broad-based and household debt remains high.
Joseph Incalcaterra, HSBC's chief economist for Asean, said the key tailwind for next year is public investment.
"An acceleration in work on priority projects should push the contribution from investment higher. We also expect the gradual recovery in private consumption to continue into next year, although the pace of improvement will lag public investment," he said.
Grassroots efforts to alleviate poverty and boost rural incomes could have a big impact on growth, seeing that weak farm income has kept private consumption subdued in recent quarters, he said.
On the domestic side, growth in private consumption and investment is expected to slightly pick up, but the key domestic growth engine will likely come from an acceleration in public disbursement for key infrastructure projects, Jingyang Chen, HSBC's economist, said in a report.
More short-term stimulus packages will also be implemented to stimulate consumption among rural and low-income households and ease their high debt burdens -- which are the key issues restraining demand, the report said.
Permanent secretary for finance Somchai Sujjapongse said that the global economic recovery and buoyant tourism will continue to push Thailand's economic growth to exceed 4% next year.
"Improved global economic growth in 2018 is an important element supporting Thailand's economy to continue growing," said Mr Somchai.
"Despite geopolitical risks threatening the global economic recovery, we believe Thailand's strong economic fundamentals are resilient enough to withstand such volatility."
Thailand's general election, tentatively scheduled for late next year, will also help boost investor confidence, he said.
Industry Minister Uttama Savanayana said that the Eastern Economic Corridor (EEC), designed to draw new investment from local and foreign investors in next generation industries, will also be a main growth driver for 2018.
Headwinds
Despite the brighter economic growth prospects, it is still subject to risks that warrant monitoring. Those factors include uncertainties pertaining to US economic and foreign trade policies, as well as geopolitical risks, the MPC said at its December meeting.
The committee cut its forecasts on both public and private investment growth for next year after a disappointing reading in the third quarter.
The central bank trimmed its 2018 public investment growth forecast to 9% from 9.8%, while the private investment outlook was also slashed to 2.3% from 3%. The cuts could be attributed, in part, to delays in public expenditure disbursement.
"We expect for Thailand's GDP [growth] to decelerate slightly next year as some of the boost from the export recovery fades," said Mr Incalcaterra.
"We may not see double-digit growth in Thai exports next year, but growth is unlikely to fall off of a cliff. We expect a moderate deceleration from growth levels in 2017."
HSBC raised its 2017 GDP forecast to 3.9% from 3.5% and also upgraded its 2018 growth outlook to 3.7% from an earlier forecast of 3.3%, mainly on the assumption that trade and the global economy will be robust in 2018.
Mr Incalcaterra said farm income and household leverage could weigh on private consumption.
"Farm-income may take more time to recover, and there will continue to be debt serviceability concerns for low-income households," he said.
"Although we factored in a continual recovery of global growth into our baseline forecast, uncertainties related to the Nafta and Brexit negotiations, political events in the eurozone, changes in US trade policy and China's ongoing structural reforms could adversely impact global trade growth, thus posing downside risks to Thailand's exports in 2018," said Ms Chen.
On the domestic front, political uncertainty will likely continue to dampen investment sentiment in the near future, but an orderly transition to a stable civilian government might improve Thailand's growth outlook beyond 2018, she said.
"There are challenges [for next year's economic growth]," said TMB Analytics head economist Benjarong Suwankiri, adding that the overall outlook is brighter because of the wider spillover effect from exports.
"Exports are expected to continue expanding, but double-digit growth is unlikely to be sustained next year," he said.
Private consumption is the major stumbling block for the uneven economic recovery as it has impacted SMEs. Long-awaited private investment can be stimulated if private consumption expands at a robust pace, said Mr Benjarong.
The government has attempted to tackle the problem of weak private consumption by focusing on boosting income for local economies and giving SMEs better access to finance, he said.
He said that weak farm prices and uncertainties related to the general election are short-term headwinds, while the speed with which operators can transfer to digital platforms is a medium-term challenge.
Political risks
CIMB Thai Bank (CIMBT) forecast the Thai economy will grow in a range of 3.5-4.5% next year, depending on the outcome of the next general election.
"If the election is delayed or the National Council for Peace and Order [NCPO] shows political ambitions, the economy in 2018 will see some challenges," said Amonthep Chawla, CIMBT head of research.
GDP growth in 2018 will depend on one of three likely scenarios for the general election, he said.
In the first scenario, in which the majority of the National Legislative Assembly rejects any one of the four organic laws and the general election is delayed, GDP growth might only be 3.5-3.8%, said Mr Amonthep.
In the second scenario, in which the NCPO pursues its political interests by forming a political party or supporting a particular party publicly, the economy could grow by 3.7-4%.
He said under the third scenario, either the Democrat Party or Pheu Thai Party will lead a coalition government that will have to work under the supervision of the National Strategic Reform and Reconciliation Committee until at least 2021.
"Under this scenario, providing there's clearly political stability after the general election, economic growth could be as strong as 3.9-4.5% in 2018," said Mr Amonthep.