What will be the economic cost of the current political crisis?

Thailand’s politics is caught in another maelstrom, this time caused by the Constitutional Court’s ruling to remove Paetongtarn Shinawatra as prime minister for a serious ethical violation.

The dramatic turn of events was triggered by the leak of a phone conversation in July between Paetongtarn and Hun Sen, the former leader of Cambodia, discussing a border dispute that ignited a public outcry.

While Paetongtarn has faced flak, there is also a national debate on whether the court is overreaching its authority by sacking prime ministers. Paetongtarn's predecessor, Srettha Thavisin, also faced the axe from the charter court

Meanwhile, there is a scramble by friends and foes of the current coalition to form the next government.

Economists, business leaders and ordinary citizens are all anxiously watching how the political turbulence will unfold and what it means for the economy and their livelihoods.

The memory of the post-2023 general election period, when dilly-dallying in government formation led to a delay in annual budget disbursement, still haunts the country—and similar fears are surfacing once again.

Slow growth for several years

Thailand has experienced sluggish economic growth over the past several years, affected by the COVID-19 outbreak and persistent political instability.

In the first half of 2025, the nation achieved a modest 3 per cent growth—a figure widely seen as an improvement. Much of this growth was spurred by a strong export performance, as US importers rushed to buy Thai goods before the higher tariffs imposed by President Donald Trump came into effect.

Consequently, the Finance Ministry has revised upward its annual economic forecast, now projecting 2.2 percent GDP growth for 2025, thanks in large part to a trade deal with the United States, which is imposing 19 per cent tariffs on Thai exports, significantly lower than the previously proposed 36 per cent.

“The Ministry of Finance projects GDP growth at 2.2 per cent for 2025—an upward revision from its earlier forecast,” deputy finance minister Paopoom Rojanasakul said in his speech on August 27 at the “SET Thailand Focus 2025”, an annual seminar aimed at attracting foreign investors.

“There could be upside growth over 2.2 per cent this year, due to a positive trade deal with the US,” Paopoom told reporters later, though he declined to comment on the potential economic impact of the ongoing political instability.

In response to the economic challenges, the government has also launched a short-term stimulus package worth 157 billion baht. Paopoom added that additional measures might not be required for now.

Political instability a worry for private sector

At the same seminar, several investors voiced concerns over the uncertain political situation and the latest developments in the Thailand-Cambodia border dispute as they awaited the court’s ruling on Paetongtarn’s fate.

The political landscape shifted overnight after the court’s August 29 ruling, sending jitters through the stock market, which closed in negative territory that day. The SET Index dropped 13.48 points, or 1.08 per cent, ending at 1,236.61.

Will the annual budget be delayed?

The annual budget bill for fiscal 2026 is currently before Parliament. The government proposes to spend 3.78 trillion baht in the upcoming fiscal year beginning October.

“The delay in forming a new government could potentially hurt the economy,” Amonthep Chawla, executive vice president and head of Research Office at CIMB Thai Bank, has warned.

However, Pisit Paopan, director of the Macroeconomic Analysis Division at the Finance Ministry’s Fiscal Policy Office, remains optimistic. “The budget is on track to be approved by Parliament soon, so there should not be any negative impact,” he assured.

The Senate is scheduled to debate the budget bill on September 1–2, following approval by the House of Representatives.

The US tariff uncertainty

A recent ruling by the US Court of Appeals that most of Trump’s tariffs were illegal raises many questions. Should these higher tariffs be canceled, Thailand’s economy—and the global economy—would be positively impacted, according to Pisit.

Promising signs of private investment?

In recent remarks to investors, Paopoom highlighted robust investment momentum. Investment promotion applications reached 1.05 trillion baht in the first six months of 2025, spanning 1,888 projects—the highest number ever recorded.

Thailand has long relied on its tourism sector, but this year arrivals have lagged expectations. “On the tourism side, the number of arrivals so far are lower than last year, but spending per head has increased,” said Paopoom.

To support tourism, the government has launched “TouristDigipay”, which allows foreign visitors to convert eligible digital assets into baht for spending through licensed e-money providers.

The project aims to stimulate tourism spending, though Thailand has yet to regain the full confidence of Chinese travelers.

“A large number of Chinese travel abroad, but many do not come to Thailand as they are still concerned about their own safety,” noted Chai Eamsiri, chief executive officer of Thai Airways International, at the same forum.

“The government has to ensure their safety,” he added.

Meanwhile, Damien Pfirsch, chief commercial officer at Agoda, a global travel booking platform, urged the Thai government to invest more in infrastructure to make secondary destinations more accessible to tourists. He remains optimistic about the potential of Thai tourism.

Border dispute with Cambodia remains a challenge

Following a deadly border clash in July, Thailand and Cambodia reached a ceasefire agreement. However, tensions persist, especially after Thai soldiers were seriously injured by landmines allegedly placed by Cambodian forces, fueling nationalist sentiment on both sides.

It remains unclear whether a new government will be able to resolve the situation and reopen border crossings swiftly.

William Ellwood Heineke, chairman of Minor International—a leading hotel operator—urged the government to pursue peace with Cambodia to quickly reopen border trade.

He emphasized that border skirmishes have hampered tourism, trade and investment between the two countries, particularly given the substantial Thai trade and investment presence in Cambodia.

According to the Thailand-Cambodia Business Council, more than 100 Thai investors have direct investments in Cambodia, estimated at about 50 billion baht.

'Time is running out'

“Whoever would be in charge, it would not make much difference from what many have forecast, but the country faces real challenges. Time is running out—no honeymoon period. The new cabinet has to speed up their work; otherwise, the economy will stumble and growth will fall far behind regional peers,” Amonthep warns.

He points to ongoing slowdown in domestic consumption, investment, tourism, and international trade. “The private sector needs concrete policies that could win confidence and deliver economic growth quickly,” he emphasizes.

Amonthep expressed concern that further delays could postpone implementation of the fiscal 2026 budget, harming the economy as a whole. The country could even face a credit rating downgrade, which would increase borrowing costs.

CIMB’s research house forecasts economic growth at just 1.8 per cent this year. “We will revise our forecast when we see the new government's policies,” says Amonthep.