Economists Urge Swift Government Formation Amid Fears of Economic Slowdown
Thai economists warn that a prolonged political vacuum could stall spending and delay crucial stimulus policies as the country's economic outlook remains fragile
- Economists are urging a swift government formation to avoid "policy paralysis" and address signs of an economic slowdown in consumption, investment, and trade.
- A delay in appointing a new government could disrupt essential government spending, hinder economic stimulus plans, and negatively impact investor confidence.
- Political instability poses significant risks, including potential delays in budget disbursement and a possible credit rating downgrade for the country.
- Clarity and stability are seen as paramount for the private sector, as a new government will need to immediately implement policies to restore confidence and deliver economic results.
Leading Thai economists are warning that the country’s current political instability, which could lead to a House dissolution, may disrupt government spending and economic stimulus plans.
They believe that a new, potentially short-lived government would be unable to effectively implement key policies, leading to a period of "policy paralysis".
A hurried dissolution before the economy has fully recovered could damage investor confidence and put pressure on the capital market.
However, some economists believe that any negative impact would be limited, as the 2026 budget has already been approved by parliament.
According to Amornthep Chawla, executive vice president and head of Research at CIMB Thai Bank, the political situation is becoming clearer, but the focus is now on the formation of a new government and the selection of a prime minister.
For the private sector and investors, he says, clarity and stability are paramount. A quick appointment of a new government would help reduce uncertainty and establish a clear economic framework.
Amornthep notes that the next government faces a "very difficult" task, with recent economic data showing a slowdown in consumption, investment, tourism, and foreign trade.
He stressed that the private sector needs concrete policies that can quickly build confidence and deliver economic results.
A delay in forming the government could affect the 2026 budget and potentially lead to a credit rating downgrade for Thailand.
"The challenge is immense because we have no time to wait. The new government will have no time for a honeymoon period; they will have to hit the ground running," Amornthep said. "Otherwise, the economy risks stumbling further, and we will fall behind other countries."
Another key risk to monitor is the stability of the new government and its ability to secure sufficient support. A slim majority could cause difficulties in passing essential legislation, including the budget bill.
Pipat Luengnaruemitchai, chief economist at Kiatnakin Phatra Financial Group (KKP), believes the political change offers both pros and cons. While it resolves some short-term uncertainty, he says it increases long-term political instability.
A review of the past 20 years shows this is the fourth time a prime minister has been removed by a court, highlighting persistent structural problems.
Even with short-term clarity, a new government could be short-lived, limiting its ability to implement major policies.
"I believe the change of prime minister at this time may not alter the economic outlook, because no matter who becomes prime minister, the new government will likely be in a weak position," he explained.
A delay in government formation could also affect budget disbursement, a serious issue that the country faced in 2023.
Paiboon Nalinthrangkul, CEO of Tisco Securities and President of the Investment Analysts Association (IAA), said the court's verdict on former prime minister Paetongtarn was "not unexpected," leading to a "limited downside" for the Thai stock market as the news had already been priced in.
He suggests that the market will await the new prime minister's selection. A potential delay could cause continued volatility.
In his view, a House dissolution and new election is not necessarily a bad thing if the economy is in a strong recovery phase, but given the current challenges—including inflation and slowing exports—a rushed dissolution without consensus could harm investor confidence.
Sorrabhol Virametheekul, senior director of Securities Analysis at Kasikorn Securities, said the market's focus is on the selection of the new prime minister and the formation of a new government.
He expects a new government to take office within 30 days. He noted that after the verdict on August 29, the Thai stock index was unchanged, while the baht depreciated by 2-3%.
Sorrabhol believes the economic downside is limited because the 2026 budget has been passed. He expects the stock market to see some short-term volatility in September while awaiting political clarity but says positive factors remain, including the budget and strong corporate earnings.
He recommends that investors view any market dip as an opportunity to buy. He suggests bank stocks for their dividends and ICT stocks, which have fallen to attractive levels and are projected to have high earnings growth.
He also notes that a potential US Federal Reserve interest rate cut in 2026, which would weaken the dollar, could lead to increased fund flows into Asian stock markets, including Thailand, and help offset domestic political risks.
