The Thai economy could post growth of 4% or higher this year assuming a resolution to the country's political conflicts, says the UN Economic and Social Commission for Asia and the Pacific (ESCAP).

The agency's 2010 Economic and Social Survey of Asia and the Pacific says Thai growth would be driven by domestic consumption and exports. But politics remains a major downside risk for growth, with instability a risk for tourism, the retail sector, new investment and general business confidence.

The forecast places Thailand at the bottom of the region in terms of economic growth, beating only Pakistan and the Philippines.

"Thailand's economy is recovering quite well and we are still optimistic about the country. Thailand's economy can grow higher than 4% if the political situation improves soon. But 4% is our benchmark for now," said Dr Nagesh Kumar, ESCAP's chief economist and director of the macroeconomic policy and development division.

The forecast is slightly lower than the latest estimates from the Bank of Thailand, which last month raised its growth target to between 4.3% and 5.8% for 2010. The Thai economy contracted by 2.3% in 2009.

But Dr Kumar said the Thai economy had "momentum" for growth beyond the benchmark 4% if the current political dispute is resolved.

ESCAP forecasts developing regional economies will post 7% growth this year, led by China at 9.5%, India at 8.3% and Singapore at 7%.Indonesia is forecast to post 5.5% growth this year, Korea 5.2%, Malaysia 5% and Taiwan and Hong Kong 4.5%. Dr Noeleen Heyzer, undersecretary-general of the United Nations and ESCAP executive secretary, said the Asia-Pacific remains the fastest-growing region in the world. A "V-shaped" rebound is supported in large part by fiscal stimulus packages adopted by the region's biggest economies.

But the rebound will be fragile, due to pressure from rising inflation and asset price bubbles in many countries. This year is likely to set challenges for policymakers, who must balance sustaining the momentum of growth with achieving financial stability.

The survey also recommends using capital controls to moderate short-term capital inflows - the result of massive expansion of liquidity in Western countries - which have created asset bubbles, inflationary pressures and exchange-rate increases in the region's developing economies.

"Capital controls are the way to reduce the risk of speculative short-term capital," said Dr Heyzer.

"We learned from the 1997 experience the dangers of that, if we don't control short-term speculation and monitor the real economy. Capital control is to make sure that it will not affect asset prices. But, at the end of the day, an open economy will go forward."