Some pundits see warning signs for Thai economic prospects following the Constitutional Court’s ruling that dismissed Prime Minister Paetongtarn Shinawatra from office for violating ethical standards in a leaked call with former Cambodian leader Hun Sen about a border dispute.
Stock market analysts said downside risks from high-profile political cases are limited, while clarity following the verdict could provide a short-term sentiment boost to the Stock Exchange of Thailand (SET). The SET index finished on Friday at 1,236.61 points, down 1.08%.
“Once the political situation becomes clearer, it should provide an upside to the SET over the next couple months,” said Wikij Tirawannarat, senior vice-president of Bualuang Securities.
“The market has already begun to speculate the next general election will be earlier than scheduled, in either the first or second half of next year. An election generally lifts the stock market. Given that perception, there is a possibility we will see a stock market rally going forward.”
Kavee Chukitkasem, chief of portfolio advisory at Pi Securities, said the SET should react positively in the short term to the ruling as it eases political uncertainties, but the medium to long-term outlook remains challenging.
“Concerns remain about economic prospects,” he said, adding the Pheu Thai administration failed to drive economic growth.
“Economic stimulus, including digital handouts or measures to prop up the tourism industry, have failed to produce a substantial boost to the economy. While the Finance Ministry still believes GDP growth could exceed 2% next year, foreign houses now see lower rates, averaging 1.7-1.8%, while the lowest at 1.5%.”
The Thai economic outlook should not significantly change if the coalition parties joining the new government consist of the same components, said Sisdivachr Cheewarattanaporn, an advisory chairman at the Association of Thai Travel Agents.
He said the government under Ms Paetongtarn hasn’t effectively improved a sluggish economy, but a House dissolution and new general elections may not happen soon as long as the political parties in power aren’t confident they can win the election.
“Instability will be an ongoing challenge for them in the medium term,” said Mr Sisdivachr.
EFFECTS ON ECONOMY
Dhanakorn Kasetrsuwan, chairman of the Thai National Shippers’ Council, said the removal of the premier affects investor confidence, possibly leading to fluctuations in the stock market and the foreign exchange rate as foreign investors react to the political uncertainty. Institutional investors might hold back on new investments until a caretaker or new government is clarified, he said.
A transition in government could delay economic stimulus initiatives including the digital wallet scheme, cost of living measures and infrastructure spending, denting business confidence and consumer purchasing power, said Mr Dhanakorn.
If protests or unrest occur, he said it would have an adverse effect on tourism and the economy in the short term, while exports might face the heightened perception of country risk.
Visit Limlurcha, president of the Thai Future Food Trade Association, said Thailand has to form a new government. Thailand faces significant economic challenges and measures are needed to stimulate economic growth and ensure stability, he said.
Recent export growth was largely attributed to stockpiling, and a slowdown in global trade is evident based on the decline in investments in the manufacturing sector, said Mr Visit.
INSTABILITY PERSISTS
Amonthep Chawla, chief economist at CIMB Thai Bank, said heightened political uncertainty is expected to dampen investment and confidence, affecting the Thai economic outlook.
“The focus now shifts to who will replace Ms Paetongtarn. If she is replaced by Chaikasem Nitisiri, another candidate under the Pheu Thai Party’s quota, the same policies will largely continue with minimal disruption. However, political instability would also persist due to the slim parliamentary majority, and the risk of an election after the budget remains,” he said.
If there is a change in the governing coalition, investors may delay decisions until new policies are clarified. The fiscal 2026 budget, which begins on Oct 1, would still proceed, but economic recovery may slow as investors wait for a clearer direction, said Mr Amonthep.
The biggest risk is parliamentary dissolution, which would halt budget disbursement and directly disrupt investment, infrastructure projects and economic recovery, he said.
Regardless of which scenario unfolds, the Thai economy in the second half of the year is likely to post slower growth or even contract quarter-on-quarter, said Mr Amonthep. Sustainable stimulus measures are needed to increase employment, generate income, attract investment, and help explore new export markets, he said.
“The Thai economy faces persistent headwinds, including an expanding trade war, China’s economic slowdown, baht volatility against the dollar, shrinking loans, weak household income, and limited fiscal space,” said Mr Amonthep.
“Thailand could risk a credit rating downgrade or a negative outlook next year if the economy does not recover.”
Nonarit Bisonyabut, a research fellow at Thailand Development Research Institute, said if Mr Chaikasem becomes the prime minister, it would be difficult to drive government policies forward.
“If Mr Chaikasem takes the premiership, the advantage is government policies would remain unchanged. But the problem is whether the government can actually implement those policies because it is operating with a slim majority,” he said, adding any Pheu Thai leader would face the same problems.
If the leadership shifts to another party, there is a chance government policies could change — for better or worse — which would result in delays in budget disbursement and economic stimulus measures, said Mr Nonarit.
If Anutin Charnvirakul, leader of the Bhumjaithai Party, becomes prime minister, the cannabis policy may be revived and the land bridge project could be continued, he said.
If parliament is dissolved and new elections held, policies would certainly be more delayed than with a simple leadership change, as elections and government formation take time. However, Mr Nonarit said the advantage of new elections is the people would get to choose leaders that address their concerns and decide how they want problems solved, such as the impact of US tariffs or household debt. Neither of these issues emerged during the last election.
Thailand faces structural economic problems that must be addressed, he said, with the immediate concern the heavy burden of household debt. If left unresolved, this will be painful for the economy — financial institutions will be reluctant to extend credit, businesses will stagnate, and the economy will fall into a “dead loop”, said Mr Nonarit.
The long-term problem is low economic growth. Before Covid, the economy grew at an average of 3.6%. After the pandemic, the growth average fell to less than 2.7%.
However, no political party has presented a sufficiently strong long-term economic policy that could help Thailand regain its place on the global stage, he said.
“Looking ahead, I still don’t see any policy that could be a real game-changer — one that would allow us to stand tall again on the world stage. The entertainment complex or land bridge policies are not the right answers,” said Mr Nonarit.
NO EASY TASK
Kiatanantha Lounkaew, a professor at Thammasat University’s faculty of economics, said the court’s ruling this time is likely to bring about changes in government policy, as the new administration that takes the reins will have at most 18 months to two years.
With such a short time frame, the new government will be under pressure to produce quick results.
“However, if the Pheu Thai Party can still lead the formation of a government, it is believed that its influence will not be the same as before. It will inevitably have to negotiate and compromise with coalition partners,” he said.
“If Pheu Thai continues to rely on its old approach — exercising power and authority unilaterally — it will ultimately undermine itself. Now it will need to adopt a more conciliatory and cooperative approach in negotiations, especially to address the damage to its image caused by the Cambodia issue.”
According to Mr Kiatanantha, if Pheu Thai remains the leading party, in order to restore public confidence in the government, it may have to form a national government that brings in figures who can inspire trust and hope among the people. This could help revive confidence to some extent.
BUDGET CONCERNS
The stock market dipped slightly deeper after the court dismissed Mrs Paetongparn from the post.
Pipat Luengnaruemitchai, chief economist at Kiatnakin Phatra Financial Group, said if the political deadlock disrupts the budget process, the economy risks repeating last year’s contraction in the final quarter.
“Even though the fundamentals remain unchanged, without fiscal spending to support economic recovery, growth will stumble. If parliament is dissolved, the loss of votes in the lower house would prevent the budget from being passed. That’s a serious concern, as it leaves the question of how the country moves forward,” Mr Pipat said.
SET president Asadej Kongsiri acknowledged that Thailand’s political turbulence could have short-term psychological effects, though foreign investors view such events as a recurring feature of the Thai market.
“I’ve been in this position for just one year and already seen two prime ministers,” he said.
He added that investors are able to separate politics from business performance, noting that many listed companies can continue growing regardless of political shifts. However, government spending could be affected if the budget process is delayed.
Bualuang Securities views in the immediate aftermath of the court’s decision (1-2 days), the SET would retreat towards 1,200 points with high volatility.
Over the medium term, or 1-3 months, equities would continue to face downward pressure, though downside risk would likely be capped at the 1,200-point level, said the brokerage.
NEW LEADERSHIP
Poj Aramwattananont, chairman of the Thai Chamber of Commerce, said this situation reflects the political instability and may impact the Thai economy, which is confronting several pressing domestic and international challenges.
“The private sector and foreign investors are closely monitoring Thai politics. If the political instability persists, confidence in the market will continue to wane. Investors will be reluctant to invest while tourism slows down. Everything will be shaken like a chain reaction,” said Mr Poj.
“Most importantly, politicians must quickly appoint a new prime minister in accordance with the constitution, so that the country will have a leader who can promptly continue with their duties. National recovery cannot be achieved by one side alone.”
He said politics must be stable and advocate for the inclusion of the business sector in the development of effective problem-solving measures, in order to restore confidence among society and investors.
“The private sector is looking for a capable cabinet with skilled and well-respected individuals who can navigate the country,” said Mr Poj.
STRESSFUL TRANSITION
The abrupt change in the government following the court’s ruling will put Thailand at heightened risk, as the country badly needs a new team of talented candidates to get it through the current economic strife, said business leaders.
“We must acknowledge the reality that political stability has shifted,” said Kriengkrai Thiennukul, chairman of the Federation of Thai Industries (FTI). “This affects investor confidence both at home and abroad, while also complicating long-term economic policy planning.”
The change in government could disrupt the disbursement of the 2025 national budget for key investment projects, he said.
The economy remains exposed to significant risks In the second half of 2025, including the prolonged Thai-Cambodian border conflict, which has dampened economic and trade activities.
In June, border trade totalled 10.91 billion baht, down 32.29% from May and a decline of 23.3% compared to the same period last year, according to the FTI.
Exporters are also struggling to deal with the impact of the 19% reciprocal tariff and rising global competition, both of which are expected to weigh on Thai GDP growth in the latter half of the year.
“If the formation of a new government is delayed, it will hinder progress on critical policies,” said Mr Kriengkrai, referring to trade negotiations with the US, resolution of border issues, flood management, and economic recovery efforts.
During this political uncertainty, he said the state must reassure both investors and the public by increasing infrastructure spending, strengthening workforce skills, and ensuring small and medium-sized enterprises’ access to financing.
“But no matter who succeeds the Paetongtarn government, they will only be in office for a short time,” said Tanit Sorat, vice-chairman of the Employers’ Confederation of Thai Trade and Industry and chairman of the National Labour Development Advisory Council. “House dissolution is unavoidable.”
Mr Tanit said it will be hard for the new government to invite experienced and capable business people to help out as they do not want to risk being in hot water due to political troubles.
