Political turmoil sparks economic fears as PM faces calls to resign or dissolve House

Concerns are mounting within Thailand’s business sector over growing political instability, amid speculation that Prime Minister Paetongtarn Shinawatra may either resign or dissolve parliament following calls for independent bodies to investigate her conduct in connection with a leaked audio clip involving Cambodia’s former leader Hun Sen.

This uncertainty is casting a shadow over the national economy, with analysts and private sector representatives warning of potential delays to the 2026 fiscal budget and disruption to flagship policies.

Two possible scenarios and their economic impact:

1. Resignation of the Prime Minister

If the Prime Minister steps down, the House of Representatives would vote for a new prime minister from the list of party-nominated candidates. Should the new leader come from the current coalition — notably Chaikasem Nitisiri of the Pheu Thai Party — the economic impact is expected to be minimal. This would likely allow the 2026 budget bill, totalling 3.78 trillion baht, to proceed as planned, along with the government's flagship policy agenda.

However, if the premiership shifts to a candidate from a different political bloc, a full review of the 2026 Budget Bill may be triggered. Such a shake-up could delay funding for key infrastructure and economic programmes already in motion.

2. House Dissolution

The more disruptive scenario would be a full dissolution of parliament. Despite the first reading of the 2026 Budget Bill having already passed the lower house on May 30, a House dissolution would invalidate the bill entirely. The government would then be unable to implement the new budget by October 1, 2025, the start of the new fiscal year.

This could lead to the kind of delays experienced after the 2019 general election, when the formation of a new government and budget revision took more than six months. During such a period, a caretaker government would be limited to spending under a provisional budget.

Impact on major policy initiatives

The potential disruption threatens to stall key legislative efforts that support government priorities — including the 20-baht flat fare electric train policy — which depends on the passage of supporting legislation such as the Mass Rapid Transit Authority (MRTA) bill and the Rail Transport Act.

As for the government's 157-billion-baht economic stimulus package, around 40 billion baht remains unallocated. If the House is dissolved, the caretaker government may still approve this portion, as it comes from the central budget for fiscal year 2025 rather than the new fiscal year. However, if the Prime Minister resigns and a new leader takes over, the funds could still be disbursed, provided commitments are made before 30 September 2025.

Private sector wary of prolonged uncertainty

The private sector has expressed concern over delays to budget implementation and project continuity — especially as talks with international partners, including ongoing negotiations involving the Trump administration in the United States, could be affected by a vacuum in Thai leadership.

Kriengkrai Thiennukul, Chairman of the Federation of Thai Industries (FTI), told Krungthep Turakij that Thailand is currently weathering multiple crises simultaneously — persistent internal issues and at least four serious external challenges. Any political change at this point, he warned, could push an already fragile economy into catastrophe, worsening conditions for labourers and SMEs.

Kriangkrai said that domestic political problems have long acted as a drag on national progress, stemming from Thailand’s weak political structure. More concerning, however, is the added pressure from external crises, which are directly impacting the economic sector:

1. Reciprocal tariff negotiations with the United States

Negotiations with the US over retaliatory tariffs are critical and must progress urgently. Washington has announced import tariffs on Thai goods as high as 36%, with the 90-day deadline fast approaching. If a political vacuum occurs and Thailand lacks a fully authorised leader, the US may lose trust, which would severely affect Thai exports.

2. Thai-Cambodian border tensions

The border crisis, which began with checkpoint closures and escalating disputes, is inflicting serious damage on border trade, with losses estimated at 500 million baht per day. Several FTI members have been directly affected — either unable to ship goods or facing supply disruptions at Cambodian factories, which now need to source raw materials at higher costs. The duration of the disruption remains uncertain.

3. Delays in passing the 2026 fiscal budget

If parliament is dissolved or the prime minister resigns before the 2026 budget is passed, it will exacerbate an already fragile situation. Thailand has previously experienced delays of 8–9 months in approving the budget, resulting in the disappearance of stimulus funds, bankrupt contractors, and mass layoffs.

“We cannot let that happen again. The 2026 budget must not be disrupted, and the 175-billion-baht stimulus package must proceed without delay. If the process stalls, it will cause problems. This is not the right time for a government change — we’ve already learned that lesson,” said Kriengkrai.

4. Free trade agreement (FTA) talks with the European Union

Talks with the EU are currently at a promising stage, with a deadline to conclude by the end of 2025. A change in government could delay the process, stalling momentum and pushing negotiations further back.

Kriengkrai added that any change in government would disrupt operations. A House dissolution or prime ministerial resignation would lead to a “neutral gear” mindset among civil servants, while the private sector would enter a “wait-and-see” mode — delaying investment decisions until there is clarity on the new prime minister, cabinet lineup, and the administration’s ability to drive forward its policies.

House dissolution could shrink GDP by 0.66%

Thanawat Pholvichai, President of the University of the Thai Chamber of Commerce and Chief Adviser to its Centre for Economic and Business Forecasting, said that Thailand’s economy is being hit by multiple internal and external challenges, prompting a downward revision of the 2025 GDP forecast from 3.0% to 1.7%.

Regarding political stability, he outlined three scenarios and their projected economic impacts:

1. Status quo (PM remains throughout 2025) – Base case, estimated GDP loss: 11.03 billion baht, or -0.06%

2. New PM from current coalition, estimated GDP loss: 37.69 billion baht, or -0.20%

3. House dissolution and fresh elections, estimated GDP loss: 112.26 billion baht, or -0.66%

Thanawat noted that particular attention should be paid to the planned mass protest on June 28, which could significantly influence public opinion and government stability. Another key development is the upcoming ruling from the Constitutional Court on whether the Prime Minister must temporarily step down from her duties. If the court orders such a suspension, a deputy prime minister could serve in her place, which would help maintain continuity and enable the budget process to proceed.

CIMB: Political instability impacts economy across the board

Amonthep Chawla, Executive Vice President and Head of the Research Office at CIMB Thai Bank, echoed these concerns, warning that ongoing political uncertainty is already damaging investor and public confidence, undermining the continuity of government policies and threatening foreign trade negotiations — particularly with the United States, where Thailand risks losing leverage in key tariff discussions.

He stated that no matter which political outcome unfolds — be it the resignation of the Prime Minister or a House dissolution — the end result will negatively impact the economy, though the severity will vary.

In his view, a prime ministerial resignation and swift formation of a new government may offer a less disruptive path. While it may bring short-term uncertainty, it would preserve the momentum of governance and reduce delays in key processes — especially the passing of the 2026 national budget, which remains the top concern among economists and the private sector. If the transition happens quickly, it is likely the budget process can continue with minimal disruption.

PM resignation seen as least damaging scenario

Burin Adulwattana, Managing Director and Chief Economist at Kasikorn Research Center, stated that a resignation by the Prime Minister followed by a swift leadership change would be a better political solution than dissolving parliament — if political deadlock makes it impossible for the current administration to carry on. He argued that such a path would likely pose the least risk to the Thai economy.

“What we want to avoid at all costs,” he said, “is an economic vacuum resulting from a political vacuum — which is a very real danger if the House is dissolved. That scenario would cause serious setbacks to economic stimulus efforts.”

He added that dissolving parliament is particularly worrying because, if the national budget cannot be passed in time, it could severely drag down the economy — similar to the situation two years ago, when a prolonged leadership impasse left the country without a prime minister for months.

KKP warns political instability could erode investor confidence

Pipat Luengnaruemitchai, Chief Economist at Kiatnakin Phatra Financial Group, echoed the concerns, noting that any scenario that leads to instability within the government will undermine investor and private sector confidence. This would, in turn, affect the ability to implement or maintain key policies and national development programmes.

“Policy delays and uncertainty about project continuity could shake market confidence,” he said, “especially if political change leads to delays in passing the annual budget.”

The biggest economic risk, he warned, lies in budget delays caused by political upheaval. Drawing parallels with past elections that led to prolonged budgetary limbo, he explained that if the 2026 budget is delayed by even one quarter, Thailand’s GDP in Q4 could be at serious risk of contraction.