Thailand - all tied up When flood waters retreat there are usually feelings of relief before the reality of what's left behind sets in. Much the same could be said of Thailand's economy, the second biggest in Southeast Asia. A recovery after last year's floods helped support gross domestic product growth of 4.4 per cent in the second quarter versus a year earlier. But a soggier economy has just been revealed in the third quarter, with growth of 3 per cent. Investors, however, remain pretty sanguine. Bangkok's SET index is up by a quarter this year, more than twice the rise in Asian equities excluding Japan. Companies exposed to domestic demand are leading the rally. Advance Info Service, Thailand's biggest mobile operator, for example, and retail developer Central Pattana have made some of the biggest gains this year. Investors must be hopeful that prime minister Yingluk Shinawatra's efforts to buoy domestic consumption will succeed. That is all very well, but much of those efforts centre on short-term boosters. Tax breaks for first-time car buyers, for example, and a rice-price guarantee programme which has just been extended until the middle of next year. Both will do little to boost productivity longer-term. Meanwhile, the hike in minimum wages will do more to support the rural economy than big urban spending. Private consumption actually picked up just 1.4 per cent over the past three months, down 40 basis points from three months earlier. What is more, details of flood-prevention infrastructure spending plans remain sketchy. That leaves Thailand back where it started - still heavily dependent on exports for growth (three-quarters of economic output, according to Capital Economics). And the future of those exports depends on the outlook for the global economy. The rally in Thailand's benchmark index has left shares trading close to decade highs of 14 times forward earnings. With the global economy itself not out of the water yet, such a valuation seems hard to justify.