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Why Thailand’s economic recovery may not be straightforward

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July 4, 2025
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Why Thailand’s economic recovery may not be straightforward
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Thailand faces an uncertain future after its Constitutional Court suspended Prime Minister Paetongtarn Shinawatra on Tuesday, CNBC said in a report.

The suspension followed a petition from 36 senators who accused her of dishonesty and breaching ethical standards.

Critics claimed that a leaked phone call between Paetongtarn and former Cambodian Prime Minister Hun Sen revealed her appeasement of the Cambodian strongman and criticism of a Thai military commander involved in a border dispute with Cambodia.

Fragile situation

Thailand’s sixth acting prime minister in two years is Phumtham Wechayachai. The suspended prime minister has 15 days to address the accusations.

“I think there is no way she returns to being PM again as this is now a concerted effort by the military and its allies to finally finish off the Shinawatras, including, more importantly, Thaksin,” Joshua Kurlantzick, Senior Fellow for Southeast Asia and South Asia at the Council of Foreign Relations (CFR) told CNBC.

Thaksin Shinawatra, father of Paetongtarn and Thailand’s prime minister from 2001 to 2006, was the subject of Kurlantzick’s reference.

Thaksin’s younger sister, Yingluck Shinawatra, served as Thailand’s first female Prime Minister from 2011 to 2014.

The leaked call had significant repercussions, leading to the Bhumjaithai Party’s withdrawal from the governing coalition.

As the second-largest party, their departure left Shinawatra with only a narrow majority in Thailand’s lower house.

Observer Research Foundation associate research fellow Sreeparna Banerjee said even if Shinawatra regained the position of PM, “her authority and coalition would remain fragile.”

Instability

Thailand’s political instability poses a threat to its economic recovery, which is already struggling with low tourism and the possibility of tariffs from the Trump administration.

Banerjee said without a stable government, Thailand’s capacity to effectively address external economic challenges, such as potential US tariffs, will be significantly hampered.

Under US President Donald Trump’s “reciprocal” tariffs, Thailand faces a 36% tariff if an agreement with the US isn’t reached by July 9, following the expiration of Trump’s 90-day suspension.

Banerjee also stated that while Paetongtarn’s government policies—focused on stimulus and export competitiveness—will continue, a lack of strong leadership could impede their execution and complicate trade negotiations.

Investor confidence may weaken, and bureaucratic inertia could delay critical responses, at a time when Thailand urgently needs clear direction and coordination to revive its sluggish economy.

World Bank downgrades Thailand forecast

The World Bank significantly reduced Thailand’s full-year growth forecast for 2025 to 1.8% from 2.9%, and its 2026 projection to 1.7% from 2.7%.

This downgrade comes despite Thailand’s economy growing 3.1% year-over-year in the first quarter of 2025 and 2.5% for the full year of 2024.

This pessimistic outlook is reflected in Thailand’s markets, with the country’s SET index experiencing a roughly 20% plunge year-to-date.

Paul Gambles, co-founder of MBMG Group, suggested that domestic economic issues, rather than tariffs, are likely the primary concern for Thailand.

Gambles was quoted in the report:

A lot of long-term structural issues are coming to the fore for Thailand at the wrong time, the worst possible time.

Political status to continue

CFR’s Kurlantzick stated that Thailand’s political stagnation is expected to persist.

Pita Limjaroenrat’s Move Forward party achieved a surprising electoral victory in Thailand in 2023, challenging the nation’s military and royalist establishment.

Despite winning the election, the party was unable to form a government. This was due to the military-appointed senate’s opposition to its proposed amendment of Thailand’s lese-majeste law.

A year later, the constitutional court dissolved the party. This led to the creation of the People’s Party, which currently serves as the primary opposition.

The post Why Thailand’s economic recovery may not be straightforward appeared first on Invezz

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