The Thai Industries Sentiment Index (TISI) fell to 87.7 points in August amid a stagnant economy, a strengthening baht and the impact of severe flooding in the North, says the Federation of Thai Industries (FTI).
The index, which gauges business confidence among manufacturers, only rose temporarily to 89.3 points in July, thanks to higher demand for food, medicine and cosmetic products.
Heavy downpours in Chiang Rai and northern provinces in August was the main negative factor affecting the agricultural and industrial sectors, causing a slowdown in the construction business, said Kriengkrai Thiennukul, chairman of the FTI.
Flooding ravaged parts of Chiang Rai again early this month, caused by typhoon Yagi after it made landfall in Vietnam.
An initial survey by the FTI found 30 of 114 of its members in Chiang Rai were affected by the floods, including submerged six-wheel trucks and damage to machines and finished products.
The federation is also monitoring whether its 387 members in the Northeast will be affected by rising water levels in the Mekong River.
"The government needs to identify the needs of flood victims, including those in the business sector, to plan for immediate help and rehabilitation," Mr Kriengkrai told the Bangkok Post in a separate interview.
An appropriate response to flood-related problems is crucial as Thailand struggles to deal with the economic slowdown and uncertainties, he said.
Manufacturers were worried about exports in August as the baht appreciated from 36.46 to the dollar in July to 34.92 last month, said Mr Kriengkrai.
The baht could appreciate further, after hitting a 19-month high of 32.2 baht to the dollar on Sept 16, if the US Federal Reserve cuts interest rates deeper than 25 basis points at its meeting this week, according to analysts.
"This is not good for exporters who already encountered increasing freight rates for shipping routes to the US and Europe, resulting from the impact of the geopolitical conflict in the Middle East," said Mr Kriengkrai.
Thailand is also plagued with a high level of household debt which weakens consumer purchasing power and leads to difficulties accessing auto loans, eventually affecting domestic car sales.
These factors contributed to the decline in the August TISI, which was based on a survey of 1,330 entrepreneurs across 46 industries under the FTI.