LAST month, Thailand celebrated second-quarter growth figures well in excess of analysts’ forecasts. Instead of a widely expected economic expansion of around 1.7 per cent, gross domestic product grew 3.3 per cent compared to the previous quarter.

Compared to the same period last year, the economy expanded by 4.2 per cent.

Clearly, the Thai economy had rebounded sharply after suffering a double-digit contraction late last year in the wake of the kingdom’s worst floods in decades.

“The main drivers were increases in private consumption as well as investment in industry zones hit by severe flooding last year,” National Economic and Social Development Board secretary-general Arkom Termpitayapaisit told reporters.

Last year’s flooding killed hundreds of people, disrupted supply chains and caused considerable damage to major industrial areas north of Bangkok. Fortunately, factories returned to production more quickly than many expected. Household consumption was also boosted in response to government stimulus measures.

“Thailand is one of the more resilient economies compared with its Asian peers with regard to the risk and headwinds from the US and Europe,” Mr Philip Wee of DBS Bank told the BBC’s Asia Business Report.

Such statements are debatable. The economies of Indonesia and Malaysia grew faster than Thailand’s in the second quarter. The Malaysian economy expanded at an annual rate of 5.4 per cent, Indonesia's grew by 6.4 per cent. Of all the countries in South- east Asia, only Singapore’s heavily trade dependent economy actually shrank.

The real lesson to be drawn from this is that in the absence of any significant rise in exports, Thailand – like its neighbours – will need to rely on domestically generated growth.

Indeed, Prime Minister Yingluck Shinawatra’s government is already pursuing this goal. Minimum wages have been raised, and the government has pledged to spend more than 2 trillion baht (S$79 billion) on infrastructure and water-management projects.

But what of the future?

One thing policymakers should not do is to rely on Thailand’s supposed resilience. A better approach would be to take the opportunity during the current lull to make the investment climate more open and business-friendly.

During his visit to Bangkok last month, secretary-general of the International Chamber of Commerce Jean-Guy Carrier warned that while Thailand remained an attractive place for foreign investors, countries such as Indonesia and Myanmar were also increasing their appeal.

“You cannot afford to stand still while everybody is moving very fast to convince investors to do business,” he warned.

As an example of what needed to be done, Mr Carrier pointed to the absence of a clear arbitration process to settle disputes between companies and between a company and the government.

Investors have to go to a Thai or foreign court to get a ruling on disputes. Unlike in other countries, investors have to ask for permission if they want to seek arbitration.

The policy of limiting foreign ownership to 49 per cent, he said, is another bugbear.

There is also the impending implementation of the Asean Economic Community (AEC) to consider. For some time now, economists have been debating the extent to which Thailand will lose out when the international agreements that underpin this regional bloc take effect in 2015. Tying Asean economies more closely together by streamlining Customs procedures, improving transportation links and allowing a freer flow of labour could see Thailand losing out to less developed countries such as Cambodia, Laos and Myanmar.

The results of a survey last month by the Japanese Chamber of Commerce and Japan External Trade Organisation in Bangkok underlined the point. Prompted in part, perhaps, by recent increases in the daily minimum wage, nearly half of the Japanese corporations with operations in Thailand were considering relocation once the AEC becomes operational.

About 29 per cent said they were looking to Myanmar, 21 per cent were considering Indonesia.

In recent years, Japanese companies have contributed almost half of all the foreign investment that has entered Thailand.

Thai Finance Minister Kittiratt Na-Ranong has dismissed the survey results, arguing that if Japanese companies had wanted to leave, they would have done so after last year’s devastating floods.

Fortunately, Mr Kittiratt may not be as out of touch with the concerns of foreign investors as statements like this seem to imply. Recent steps to improve the investment climate have already included a reduction in income tax from 30 per cent to 23 per cent. The government has also announced massive infrastructure projects designed to reduce flooding and cut logistical costs.

Such moves suggest that some serious thinking is already going on behind the scenes regarding future growth prospects.

(C) Singapore Press Holdings Limited