Thailand's economy teeters as political turmoil threatens recovery efforts
BANGKOK, June 20 (Reuters) - Thailand's economy is already on the ropes.
Consumption has remained tepid despite a government stimulus programme, few of its economic engines are firing, and uncertainty wrought by U.S. President Donald Trump's reciprocal tariffs means that the Thai economy could grow just over 1% this year.
Now, Southeast Asia's second-largest economy faces a fresh challenge: a new round of political chaos that can bring down Prime Minister Paetongtarn Shinawatra or her ruling Pheu Thai party.
"We are currently in a period of economic downturn, with many issues affecting us," Visit Limlurcha, vice chairman of the Thai Chamber of Commerce, told Reuters.
"This could make things even more complicated."
The most significant short-term concern is the passage of a 3.78 trillion baht ($115 billion) budget for the 2026 fiscal year, which starts on October 1, that must pass through parliament over the next few months.
That process could get stalled if Paetongtarn, who is under siege for her handling of a festering border row with neighbouring Cambodia, dissolves parliament and triggers fresh elections.
"If parliament is dissolved before the budget is passed, the process will be delayed significantly," said Prakit Siriwattanaket, managing director of Merchant Partners Asset Management.
Thailand's economy has lagged regional peers as it struggles under high household debt and borrowing costs, and sluggish demand from China, which is also a key tourism market.
It expanded 2.5% last year, and growth could be further halved this year due to U.S. tariffs, Finance Minister Pichai Chunhavajira said last month.
Thailand's stock market (.SETI), opens new tab has been the worst performing bourse in Asia so far this year, down 23.4%. Industrial sentiment also hit its lowest in eight months in May, even as consumer confidence dropped to a 27-month low.
There is a clear need to press ahead with government spending, which has dropped by over 38% annually during April-May 2025, OCBC economists Lavanya Venkateswaran and Jonathan Ng said in a report on Thursday, warning of a "double whammy" for the economy if both government expenditure and exports weaken.
Amid the ongoing tumult, Paetongtarn may be able to hang on to her premiership and a coalition led by her Pheu Thai party could retain its majority, albeit in a weaker position compared to its previous grip on the parliament.
Such an arrangement will prolong political instability and raise the spectre of street protests, which have been part of previous crises and could hit one of Thailand's key remaining economic engines: tourism.
"I'm worried. I don't want the situation to cause people to take to the streets," Thienprasit Chaiyapatranun, President of Thai Hotels Association, which represents around 1,000 hospitality establishments, told Reuters.
"If they take to the streets, it will hit tourism."
Activists - including those who have in the past agitated against Paetongtarn's father, the divisive former premier Thaksin Shinawatra - met on Friday to plan a major protest next week, and demanded the prime minister's resignation.
A government lacking full authority may also struggle in ongoing trade negotiations with the United States, which has threatened to impose a 36% tariff rate on imports from Thailand, said Natapon Khamthakrue, an analyst at Yuanta Securities.
"The United States certainly would not want to talk to a government without full power or with few votes," he said.
Some business chambers and analysts are, nonetheless, holding out hope that a political resolution can be found quickly, minimising damage to the Thai economy, which has been rattled by multiple coups in the last eight decades, including two against governments led by the Shinawatra family.
"Although the economy is no stranger to political uncertainty," OCBC's economists said, "the timing could not be more inconvenient considering external headwinds."
($1 = 32.7800 baht)
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
The Independent
3 hours ago
- The Independent
Malaysian court drops money laundering charges against jailed ex-leader Najib Razak
A Malaysian court dropped three money laundering charges against jailed former Prime Minister Najib Razak on Friday, in a case linked to the multibillion-dollar looting of a state fund. Najib was previously convicted in a graft case tied to the 1Malaysia Development Berhad state fund, or 1MBD, and began serving time in 2022, after losing his final appeal. He also faces other graft trials. The High Court 's decision to drop the charges alleging Najib received 27 million ringgit ($6.3 million) in illegal proceeds to his bank accounts came after procedural delays by the prosecution, which saw the case dragging on for six years, Najib's lawyer Muhammad Shafee Abdullah said. Prosecutors could not give the court a timeline for when they will be ready for the trial, he added. Prosecutors reserve the right to revive charges against Najib and a discharge does not mean an acquittal, Shafee said. But, Najib was happy and can now focus on the main 1MDB trial, he added. Najib set up 1MDB shortly after taking power in 2009. Investigators allege that more than $4.5 billion was stolen from the fund and laundered by his associates to finance Hollywood films and extravagant purchases. The scandal upended Najib's government and he was defeated in the 2018 election. Last November, the High Court also discharged Najib and the former treasury chief in another 1MDB-linked corruption case after repeated delays by the prosecution. The pair can still be charged for the same offence in the future. In 2023, Najib was acquitted on separate charges of tampering with a government audit into 1MDB. Najib was sentenced to 12 years in jail in his first graft trial but the sentence was halved by the Pardon Boards in 2024. Najib alleged the board had issued a home arrest order for him to complete his sentence at home, but the case is still being heard in court. Najib awaits his verdict in another key case that ties him directly to the 1MDB scandal, which has prompted investigations in the U.S. and several other countries. The defense in May closed their case on four charges of abuse of power to obtain over $700 million from 1MDB that went into Najib's bank accounts, and 21 counts of money laundering involving the same amount. Closing arguments are scheduled in October, after which the court will set a date for verdict.
The Independent
3 hours ago
- The Independent
Thai prime minister visits border with Cambodia after leaked conversation triggers resignation calls
Thailan d's Prime Minister Paetongtarn Shinawatra visited the border with Cambodia on Friday as she faced resignation calls following a leaked phone call between her and Cambodia's former leader discussing recent border tensions. Paetongtarn traveled to a border town in northeastern Ubon Ratchathani province, near a small contested territory with Cambodia where a brief confrontation between the two sides on May 28 killed one Cambodian soldier. A statement from Thailand's Government House said Paetongtarn's visit was aimed at boosting morale among soldiers who are working hard to protect the country's sovereignty and interests. Several groups of activists said Friday that they would rally next week to demand Paetongtarn's resignation. Cambodia's Senate President Hun Sen on Wednesday released a 17-minute recording of a conversation with Paetongtarn. She could be heard telling Hun Sen not to listen to 'an opponent' in Thailand. It's believed to be a reference to regional Thai army commander Boonsin Padklang, who had publicly criticized Cambodia over the border dispute. Before the leak, Paetongtarn had already been criticized for a perceived soft stance toward Cambodia, especially by right-wing nationalists who are longtime foes of her father, former Prime Minister Thaksin Shinawatra. During Friday's visit, Paetongtarn was filmed walking alongside Boonsin, the commander of the 2nd army area who oversees the border area including the site of the recent clash, in an apparent display of unity between the government and the military. Thailand's military plays a major role in politics. It has staged 13 coups since Thailand became a constitutional monarchy in 1932. Paetongtarn's father, Thaksin, was ousted in a coup in 2006, and Thaksin's sister, Yingluck Shinawatra, who became prime minister in 2011, was also toppled by the military in 2014.
Reuters
4 hours ago
- Reuters
Indonesia expects to sign free trade deal with Russia-led union this year, minister says
JAKARTA, June 20 (Reuters) - Indonesia expects to sign a free trade agreement with the Russian-led Eurasian Economic Union (EAEU) this year in a move likely to boost demand for its commodity exports, its senior economic minister said in a statement released on Friday. Coordinating Minister for Economic Affairs Airlangga Hartarto said the agreement would open up new opportunities for commodities including crude palm oil, coffee and natural rubber. Both parties announced on Thursday they had completed substantive talks for the agreement. "I hope both parties can immediately follow this up by completing all the necessary stages of the process so that this agreement can be signed this year," Airlangga said. As of March, the value of trade between Indonesia and the EAEU stood at $1.6 billion, 85% more than the same period last year, Indonesia's coordinating ministry for economic affairs said. The EAEU is already one of Indonesia's biggest palm oil buyers, with imports valued at $544.64 million in 2023. The EAEU's main exports to the Southeast Asian nation include fertilisers and ferro-alloys. The completion of Indonesia-EAEU FTA talks was announced on Thursday during President Prabowo Subianto's visit to Russia this week for a meeting with Russian President Vladimir Putin. The EAEU has five members: Armenia, Belarus, Kazakhstan, Kyrgyzstan and Russia.
