The Federation of Thai Industries (FTI) index rose to 88.5 in December, the highest level in nearly two years, thanks to the government's economic policies that increased purchasing power and demand as well as recovering global and local economies.
It was the fourth consecutive rise and the highest in 22 months, up from 87.6 in November.
FTI chairman Chen Namchaisiri said there was higher production in sectors such as electronics and electrical, food and food processing, fashion, cars and auto parts.
Rising demand pushed current average production capacity up to 65% from 58% the previous year.
"It's a good sign for the Thai economy and investment as the rising index will increase investor confidence," he said.
However, Mr Chen said there were some negative factors that could weigh on the FTI's confidence index in the next three months, which is forecast to drop from 102 in December to 100 or lower in the next few months.
The main negative factor is the worst flooding in nearly 30 years in southern Thailand, which is a key plantation area for major commodities such as rubber and palm oil.
The floods also cut off transport and logistics systems, with analysts predicting financial damage of 27.4 billion baht to the Thai economy.
Other negative factors include a rising minimum wage that could raise production costs and cut competitiveness, as well as rising oil prices and a fluctuating currency exchange that may deter investors, he said.
As a result, businesses want the Thai government to give immediate support to those adversely affected by the floods and issue more financial support to encourage investments.
Moreover, the government should continue its policy of promoting small and medium-sized enterprises (SMEs), said Mr Chen.
"SMEs are key to helping the Thai economy to grow further. That's why we want the government to continue supporting SMEs, particularly helping them to expand their business into the neighbouring countries in Asean," he said.
The business sector supports the government's promotion of investment in the Eastern Economic Corridor, which is hoped to attract more foreign investors to do business in Thailand, said Mr Chen.
The FTI expects Thailand's GDP to continue to grow this year because of stable oil prices, projected to stay around US$50 a barrel.
A recovering global economy and Thai business expansion are expected to support the Thai economy, while growing Asean economies should lift demand, he said.