September 4, 2025
BANGKOK – Bloomberg on Tuesday reported that political turbulence in Thailand could lead to a temporary setback for the country’s economic growth. Following the Constitutional Court’s ruling removing Paetongtarn Shinawatra from her position as Prime Minister on August 30 due to serious ethical violations, there has been increasing competition between Pheu Thai and Bhumjaithai to appoint a new Prime Minister.
Both parties have been racing to secure support from the People’s Party, which is calling for a House dissolution and fresh elections within a few months.
“If political instability leads to a House dissolution, the process could drag on and put more pressure on Thailand’s already weak economic growth momentum,” said Lavanya Venkateswaran, an economist at OCBC Bank in Singapore.
She noted that Thailand’s economy is under pressure from US President Donald Trump’s tax policies and border clashes with Cambodia. The government estimates that economic growth in 2025 will average just 2%, significantly lower than that of neighbouring countries such as Indonesia and the Philippines.
Eyes on BOT’s further rate cuts
Since October 2025, the Monetary Policy Committee (MPC) of the Bank of Thailand (BOT) has reduced the policy interest rate by 1.0%, bringing it down to 1.5%. The BOT has indicated it may consider further rate cuts if there are signs of a significant slowdown in economic growth or unexpected shocks.
“If there is a delay in policy implementation and confidence continues to erode, the BOT may accelerate monetary easing, but the room for further cuts may be limited due to structural constraints and external pressures,” said Krystal Tan, economist at ANZ Bank, predicting a 0.25% cut in Q4 2025.
Tim Leelahaphan, Executive Director of Economics for Thailand and Vietnam at Standard Chartered Bank (Thailand), holds a different view from most analysts. He expects a 0.5% rate cut at the MPC meeting on October 8, 2025, partly due to the political uncertainty dragging on.
“Changing the Prime Minister to someone from another political party would dramatically alter policy directions, including economic policies, and could cause short-term disruptions,” he said.
Thailand’s credit rating at risk of downgrade
Nomura Holdings Inc. has warned that Thailand’s credit rating may be downgraded by Moody’s in the coming quarters, citing growing political uncertainty and ongoing economic stagnation. Previously, Nomura had predicted that Thailand’s interest rates would fall below 1% by the end of 2025, but now there are concerns over the potential impact of these issues on the country’s credit standing.
In April 2025, Moody’s lowered its outlook on Thailand’s credit rating from stable to negative, citing the potential impact of US import tariffs on Thailand’s trade and economic growth, alongside rising global uncertainty and challenges to economic recovery. However, Thailand’s Baa1 credit rating remained intact after the Constitutional Court ruling on the Prime Minister’s case.
In its latest analysis, Moody’s pointed out that Thailand’s divided politics, with a fragile coalition government and frequent changes in leadership, is holding back investment and hindering essential structural reforms.
Despite these challenges, Bloomberg reported some positive news for Thailand, as the House of Representatives passed the 2026 fiscal budget of 3.78 trillion baht on September 1, with the Senate expected to approve it on Tuesday. This move is expected to alleviate concerns among investors over potential budget delays, as occurred in 2019.
Bureaucracy supports national stability
S&P Global Ratings noted in its latest statement on September 1 that the political volatility following the Prime Minister’s removal should not significantly impact Thailand’s credit outlook. S&P also predicted that the Thai government’s operations would likely remain stable due to the strong role of the bureaucratic system, which has upheld the country’s stability since the 2006 political crisis.
However, ongoing trade negotiations between Thailand and the US could be affected by political unrest, particularly if there is a House dissolution, as parts of the agreement, such as import tax reductions on US goods, require parliamentary approval.
Burin Adulwattana, Managing Director and Chief Economist at Kasikorn Research Centre, warned that Thailand’s economy could face setbacks across multiple areas if political paralysis ensues. “Budget disbursement, investment projects, and trade agreements with the US will stall if political paralysis takes hold,” said Burin. “There is no good news on the horizon.”
Political instability could impact Thailand’s credit rating
Amonthep Chawla, Assistant Managing Director and Head of Research at CIMB Thailand, warned that Thailand’s credit rating could be downgraded amid the country’s ongoing political instability and stagnant economic growth.
He explained that the current political situation, coupled with Thailand’s economic slowdown, presents risks to the country’s credit outlook. While the US credit rating agency Moody’s has not yet made any drastic moves, the ongoing political uncertainty could lead to a negative outlook on Thailand’s economy, with potential consequences for its credit rating in the future.
“It’s not just about the political issues directly, but rating agencies are closely observing the relationship between politics and the economy,” he said. “If the situation leads to prolonged delays in government operations or further budgetary issues, these could negatively affect Thailand’s credit rating.”
He also pointed out that while political changes, such as a new Prime Minister or House dissolution, would not automatically trigger a credit rating downgrade, they do contribute to growing concerns. With Thailand’s economy experiencing low growth for a prolonged period, the structural factors behind this stagnation mean that political uncertainty is becoming a more significant concern for credit agencies.
Furthermore, Amonthep added that the delay in government action and the potential disruption in the disbursement of government budgets could serve as a signal for credit agencies to re-evaluate the country’s outlook. While the 2026 budget has already passed the Senate, the actual disbursement process and its impact on economic growth need to be closely monitored.
“This situation is not new,” said Amonthep. “It’s not just TIS that has lowered its outlook, but S&P and Fitch have also previously downgraded Thailand’s outlook.”
In terms of economic impact, Amonthep believes that a downgrade may not cause an immediate capital outflow, nor would it result in significant depreciation of the Thai baht or a mass sell-off of stocks. However, he warned that it remains a trend to watch and Thailand must remain vigilant in addressing these challenges.