"The Thai economy may continue to face the flood impact in the first quarter and, probably, the impact of global economic uncertainty and an increase in machinery imports for substitution," Deputy Governor Suchada Kirakul told reporters. "It's possible that the surplus in trade and current account may fall and may be in balance."

Thailand's worst flooding in half a century is expected to take a toll on the economy after a crisis that lasted several months and left major industrial estates under water, with hundreds of factories damaged and global supply chains disrupted, particularly in the automobile and IT sectors.

The government has put flood-related damages at 1.3 trillion baht ($41.5 billion) and will seek cabinet approval next week for a 350 billion baht budget for infrastructure and water management to try to restore dented investor confidence and avert another crisis in future.

On Nov. 30. the Bank of Thailand cut its 2011 growth foreast to 1.8 percent from 2.6 percent, itself a decrease from the 4.1 percent projected before the floods. However, it raised its 2012 forecast to 4.8 percent from 4.1 percent, anticipating spending and pent-up demand.

Suchada said the Thai baht should be relatively firm next year, in line with the direction of capital flows, although there could be several factors that lead to volatility in the currency.

The inflows from flood insurance payments would continue to come in the first quarter while nagging concerns about the sovereign debt crisis in the euro zone might restrict fund inflows to the region, she said.

Copyright Reuters, 2011