Current political crisis has an economic cost for Thailand
The political uncertainties clouding Thailand following the Constitutional Court’s order to suspend Prime Minister Paetongtarn Shinawatra is casting an ominous shadow over the country’s economic outlook, which was already beset with difficulties.
The suspension order on Tuesday came after the court accepted a petition filed by a group of 36 senators who accused Paetongtarn of violating the constitution, following her leaked phone call with former Cambodian prime minister Hun Sen.
Many local economists and business leaders have voiced concerns about the impact of the ongoing political turmoil on the country’s gross domestic product (GDP) this year. Investors have become cautious, which threatens to derail recovery efforts.
Observers have warned that persistent instability could further weaken consumer and business confidence in the months ahead.
Amornthep Chawla, senior executive vice president and head of CIMB Thai Research Office of CIMB Thai Bank, said that Thailand was entering “the second half of the Year of the Serpent [2025] with intense heat”.
“Rising political tensions—both domestic and global—are weighing on sentiment and could further undermine confidence going forward,” he said.
Impact on economy from PM’s suspension
Amonthep believes political uncertainty is increasingly pressuring Thailand’s economy in three key areas:
● Deteriorating private sector confidence: Both domestic and foreign investors are holding back new investments. Private sector players are likely to become more cautious, especially for projects dependent on government budgets—particularly in the construction sector.
However, if the government manages to maintain stability and policy continuity, the loss of confidence could be contained.
Watch for potential risks to political stability if coalition parties face internal pressure to reconsider their stance or withdraw from the government, which could eventually lead to a House dissolution. For now, this is not an immediate short-term risk.
● Constraints on economic policy implementation: While the PM’s temporary suspension is unlikely to affect disbursement of the budget for the current fiscal year or the rollout of stimulus measures—as the current government is fully functional and not a caretaker—there is a risk that consumer confidence could weaken, reducing the effectiveness of fiscal injections into the economy.
Deputy prime ministers can still push forward with various projects. However, if the situation escalates toward a House dissolution, delays in the 2026 budget process could hurt the economy from the fourth quarter of this year through Q2 next year.
● Impact on international trade negotiations: There are concerns over the impact on ongoing negotiations with the United States, especially Thailand’s efforts to secure lower US import tariffs. While immediate impacts are unlikely and scheduled talks should proceed as planned, there is growing worry that the US may leverage Thailand’s political instability as a bargaining chip in trade negotiations.
"The government urgently needs to clarify leadership transition plans by demonstrating a clear vision and actionable strategies to prevent politics from becoming a drag on Thailand’s economic recovery during this critical period,” Amonthep suggested.
Trump causes global turbulence, once again
Amid the domestic political crisis, a Thai team has been engaging in trade negotiations with the United States, but there is no clarity yet on the outcome.
President Donald Trump is set to announce a new round of import tariffs on goods from China, Thailand and several other countries in July, aiming to address the US trade deficit.
Although the tariff rates will be lower than those initially proposed in April, Trump is expected to maintain a 10 per cent base tariff on countries who run a trade surplus with the US, with some exceptions, depending on negotiations tied to increased imports of US goods.
Additionally, tariffs ranging from 10 to 25 per cent may be imposed on certain product categories to boost domestic industries and discourage imports. These include steel, aluminum, automobiles and auto parts, and potentially pharmaceuticals in the future, in Amornthep’s opinion.
“Thailand may face tariff rates higher than 10 per cent because of its trade surplus, but the rate may be lower than the reciprocal rate of 36 per cent announced by Trump in April, but later deferred,” said Amonthep.
The Bank of Thailand has projected economic growth rate at 2.3 per cent this year, but CIMB Thai Bank forecasts only 1.8 per cent.
“This is a downside risk caused by future political turbulence,” he added.
Business leaders are increasingly alarmed about the impact of the ongoing political uncertainty. During its regular monthly news conference on July 2, the Joint Standing Committee on Commerce, Industry and Banking expressed concern that the political turmoil could delay budget disbursement for fiscal 2025 and potentially postpone Parliament’s approval of the budget bill for fiscal 2026, which begins in October.
Such delays would likely have negative effects on the economy in the fourth quarter of this year.
The committee forecast GDP growth at just 1.5 to 2 per cent for 2025. They highlighted signs of economic weakening in the second half of the year, citing threats from possible reciprocal tariffs under a potential Trump administration, a slowdown in domestic demand, and a decline in Chinese tourist arrivals.
Potential solutions to Thailand’s political crisis
Debate continues to intensify over possible resolutions to Thailand’s ongoing political crisis. In the lead-up to the Constitutional Court’s suspension of Paetongtarn as prime minister, many political observers and opposition figures had called on the PM to dissolve the House of Representatives or resign, arguing that such moves could provide a democratic reset and help restore public confidence.
In the wake of the suspension, acting Prime Minister Suriya Jungrungreangkit is faced with similar demands—to dissolve Parliament and pave the way for a general election.
Legal scholars and political analysts have criticized the court’s intervention, viewing its decision as an overreach of judicial authority into the executive branch, potentially deepening Thailand’s cycle of political instability.
According to Titipol Phakdeewanich, a political scientist at Ubon Ratchathani University, “The best option would be the dissolution of Parliament.” Yet, he also notes that this step is unlikely, given the dominance of the Shinawatra family and their control over the ruling Pheu Thai Party.
Should the Constitutional Court ultimately rule to remove Paetongtarn from office on grounds of severe ethical violations, it is probable that Pheu Thai would seek to maintain its hold on power by nominating and negotiating with coalition partners to install another party candidate as prime minister.
In Titipol’s view, the Shinawatra political dynasty prioritizes family interests over national reconciliation. He warns that the court’s actions risk perpetuating a historic “vicious cycle” of judicial intervention in executive affairs—a pattern that has repeatedly unsettled the country’s political equilibrium.
Regional tensions and economic fallout
The ongoing political impasse is further complicated by Thailand’s territorial dispute with Cambodia.
This issue, Titipol notes, is not merely a question of borders, but is also entangled in a conflict between the Shinawatra family in Thailand and the Hun Sen family in Cambodia.
The fallout from these tensions has spilled into the economic sphere: annual bilateral trade exceeds 300 billion baht, with nearly 200 billion baht flowing through border checkpoints. However, both countries recently implemented tit-for-tat restrictions, leading to a suspension of cross-border trade, compounding economic difficulties on both sides.
Titipol does not expect a swift resumption of normal trade relations or the reopening of border checkpoints in the near future. He believes both governments are likely to maintain their current stance until the Constitutional Court rules on Paetongtarn’s fate as Thai prime minister.