Analysts are weighing the possibility of re-emerging political strife arising from a contentious draft of a royal pardon decree, as well as the unresolved flood crisis, for their impact on markets.
Apart from external risks, chiefly euro zone debt, more domestic risk factors could drag down Thailand's economy throughout 2012, said KGI Securities research.
The cabinet last week quietly approved a draft decree for a royal pardon that could include Thaksin Shinawatra.
The decree would seek pardons for more than 20,000 convicts on the occasion of His Majesty the King's birthday next month.
However, it was worded in a way that would include people convicted of corruption, notably the self-exiled former prime minister.
Protests against the plan have already begun, and if the political movement against the government headed by Thaksin's sister escalates, unrest and even riots are seen as possible in the near term.
According to KGI, some analysts believe there is an implied plan for Prime Minister Yingluck to step down after June 2012 to open the door for her brother to return as PM.
This would be followed by a cabinet reshuffle to bring back key figures among the 111 Thaksin-linked politicians whose five-year ban will expire in May.
The heightened political tension comes at a time when the country is just beginning the long process of recovering from the worst floods since 1942, said the brokerage.
Meanwhile, there is no guarantee that severe flooding won't be seen again in 2012. Water levels in major dams in northern Thailand remain at full capacity and floodwater in central Thailand is only now starting to recede.
Flooding could also push inflation, notably in essential goods and services, above 4% during the first quarter of 2012.
However, KGI believes the Bank of Thailand will reduce its policy interest rate to encourage a recovery, with a rate of 2.25% or 2.5% by the end of 2012, compared with 3.5% now.
It also believes inflation could ease to 2% by year-end, though this would partly reflect the high base at the end of 2011.
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