The stronger-than-expected growth was attributed to government expenditure and expanding exports. Government expenditure grew 11.2 per cent year on year, while exports expanded 6.5 per cent year on year, providing a temporary boost to the Thai economy.

But we cannot bank on government expenditure and exports to carry the economy forward for the whole year. If the recovery is going to be sustainable, private investment and consumption must pick up. Unfortunately, the real picture of household consumption and private investment is very bleak. Household consumption rose only 1.3 per cent year on year in the first quarter, the lowest level since 1999 when Thailand was still reeling from the financial crisis. Private investment, which has been sluggish over the past two years, contracted 1.4 per cent year on year in the first quarter, the first such contraction in six years. Construction also fell in tandem.

We can conclude that the economy is now being supported largely by external demand and government expenditure, which might not prove sustainable in the following quarters. Therefore, the government must work even harder to keep its spending machine humming in order to stimulate the economy.

The Bank of Thailand will also need to cut interest rates further to boost demand. Some investment houses say there is room for the central bank to cut its rate by another 75 basis points to 2.75 toward the end of the year. At this point, we are starting to see some worry about the health of the Thai banks. They are flooded with liquidity but cannot lend, fearing bad debts. In the meantime, there are few customers for the banks to chase. Competition for hire purchase and consumer finance has been cut-throat.

If the economic growth rate slides below 4 per cent, the banks would then show more bad debts on their balance sheets. At the same time, Thai consumers and investors in general are looking forward to a clearer picture regarding the political situation before they are willing to spend their money or invest in new projects. It seems now that everything has been put on hold. Consumers and investors have decided to defer their spending plans until after the general election or until they can see a new government in the making.

To a certain degree, the Constitution Tribunal's harsh verdicts on the Thai Rak Thai Party have provided a clearer picture of the direction of Thai politics. There has been short-term speculative buying in the stock market. But this rally should be a short-term phenomenon until there is evidence of higher corporate earnings or a broader economic recovery.

Now we can look forward to the completion of the draft constitution, which should be finished by next month. A national referendum on the new constitution will be held in August. There will be some big disputes over the new constitution, which most people don't agree with. But eventually Thailand must have a new constitution in whatever form. Only then can a general election be called. The schedule for the December election has not yet been changed.

If 2007 is a lost year, then 2008 should be a year of recovery - if the political situation settles down. But the Thai economy still has to face the challenges of structural distress from losing competitiveness in labour-intensive industries, from infrastructure bottlenecks, and from higher dependence on imported energy and a poorly educated workforce. We need a new leader who can provide a vision on how Thailand can re-emerge as a stronger nation.