Political instability taking the wind out of Thai economy sails

Since the last general election in May 2023, Thailand has been in the throes of political turbulence. Two prime ministers have served short terms in office while the third PM would have had barely four months in office. The country is now preparing for its next general election, scheduled for

February 8, 2026.

After serving for just about two months, Prime Minister Anutin Charnvirakul made the decision to dissolve Parliament on December 12. The move was prompted by the opposition People’s Party attempting to launch a no-confidence motion against his minority government, triggered by a conflict over constitutional amendments.

Economic disruption and uncertainty

The ongoing political instability has disrupted economic activities, impacting public spending, private investment, consumer confidence and critical trade negotiations with the United States, the world’s largest economy.

These disruptions have cast a shadow over Thailand’s economic prospects.

“The dissolution of Parliament leaves the country without a real government; the private sector is concerned that civil servants will go idle, and the country will become mired in problems,” said Kriengkrai Thiennukul, chairman of the Federation of Thai Industries (FTI).

“A caretaker government is not the same as a government with full authority,” Kriengkrai pointed out. “From past experience in Thailand, once Parliament is dissolved most civil servants tend to go into neutral gear or ease off in their work, waiting and watching who will form the next government. This reduces both work standards and the authority of permanent officials.”

“The private sector would like to urge the permanent secretaries of all relevant ministries to proactively address all pending tasks, whether they are policies or measures already announced and approved, which are considered vital for supporting the economy at the end of the year,” he said, posing, “Now, with the country stumbling in many areas, will this further slow Thailand’s already sluggish GDP growth?”

“If the government’s work is further disrupted, Thailand’s already slow-growing economy may slow down even further, affecting the confidence of both investors and the general public,” he warned.

Delays: the price of instability

Many voters were disappointed that the Anutin administration did not implement the second phase of the popular co-payment scheme. More than 33 million people have benefited from this program, which matches consumer spending on daily necessities with a government subsidy of up to 2,400 baht per person.

Frequent changes in government have also delayed long-term projects. Energy sector reforms have stalled, with current policies favoring large private energy firms at the expense of consumers and other business sectors.

“The review of the power development plan has dragged on through three administrations: Srettha Thavisin, Paetongtarn Shinawatra and Anutin Charnvirakul,” says Praipol Koomsup, an independent economist specializing in the energy sector.

Key transportation projects have also encountered significant delays. The high-speed rail linking the three main airports—Suvarnabhumi, Don Mueang, and U-Tapao—has been postponed, according to Sumet Ongkittikul, research director at the Thailand Research Institute.

These delays have a ripple effect on other major projects, such as Phase 1 of the China-Thailand Railway (Nakhon Ratchasima-Bangkok high-speed rail).

Phase 2 of the China-Thailand Railway (Nakhon Ratchasima-Nong Khai high-speed rail) has faced ongoing scrutiny and delays under the Anutin government, says Sumet.

The pressing issue of tax reform has also been delayed, as coalition governments lack a clear mandate from voters and parties are wary of upsetting voters. Economists have long urged an increase in value-added tax (VAT) from 7 per cent to around 8-10 per cent to help finance persistent budget deficits.

Anutin rejected the tax hike idea even after Finance Minister Ekniti Nitithanprapas floated the possibility of a VAT increase starting 2028 to address fiscal sustainability.

Outstanding issues and regional conflicts

Kriengkrai stresses that there are still many major unresolved problems amid an abnormal situation.

“Post-flood recovery in nine provinces remains incomplete, and the caretaker government may slow down or disrupt rehabilitation efforts.

Additionally, the second round of border clashes between Thailand and Cambodia has been escalating and spreading since they resumed on December 7, impacting trade, tourism and agriculture in several northeastern border provinces. Hundreds of thousands of people have been displaced, and some industrial estates have had to halt operations,” he says.

Many observers have blamed Anutin for prolonging the border fighting, accusing him of seeking political gains through nationalist sentiment ahead of the election, at the expense of the economy and livelihoods of people along the border.

Meanwhile, Thapanee Kiatphaibool, governor of the Tourism Authority of Thailand, estimates foreign visitors would be down by 8 per cent in 2025 at 32.8 million, citing the Thai-Cambodia border conflict and devastating floods in the South.

Tourist sites in the Northeast, at the border with Cambodia, have closed to visitors, and tourists have canceled bookings in the Eastern provinces.

To lessen the debt burden on people at the border, the Bank of Thailand has asked financial institutions to delay mortgage and car hire-purchase loan collection.

International negotiations and ceasefire

Kriengkrai also highlights that international negotiations, especially “important talks between Thailand and the US remain pending. If negotiations or contacts with major powers like the US occur during this period, it’s uncertain whether there will be limitations or obstacles to decision-making”.

The latest agreement between Thailand and Cambodia to temporarily cease fire for 72 hours starting December 27 may provide some relief to people and businesses along the border.

Upside of the upcoming election

There are some positive factors in the run-up to the general election. The University of the Thai Chamber of Commerce (UTCC) has predicted that the 2026 general election will be marked by fierce competition among political parties.

It is expected that campaign spending will circulate 40 billion to 60 billion baht, supporting economic growth in excess of 2 per cent in the first quarter.

The university also released survey results showing a lively atmosphere during the 2026 New Year festival, with anticipated spending exceeding 100 billion baht—the highest in six years. According to the university’s survey, the “Khon La Khrueng” co-payment scheme has helped stimulate consumption.

“The competition among political parties will become more intense, as many parties aim to lead the government. This, combined with a shorter campaign period and the entry of new parties into the election, is intensifying the race,” says Thanavath Phonvichai, president of the UTCC and chairman of the Advisory Board for the Economic and Business Forecasting Center.

“However, the main contenders for power will be the three major parties — Pheu Thai, Bhumjaithai and People's Party. All of them want to secure at least 100 seats to lead the government,” he says, adding, “Meanwhile, medium and small parties, such as Kla Tham, aim to become larger parties to join coalition governments, and parties like the Democrat Party and Palang Pracharath are targeting 20-25 seats to be considered as government formation options.”

He predicts increased spending for campaigning, field visits and political activities, with an estimated 40-60 billion baht circulating in the economy. “This will help sustain economic expansion above 2 per cent in early 2026, provided the tourism sector continues to recover,” he says.