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[BANGKOK] Thailand needs to find a new prime minister.

The Constitutional Court’s dismissal of Paetongtarn Shinawatra on Aug 29 has deepened political uncertainty just as the economy shows signs of strain, with growth slowing, household spending slipping, investment cooling and exports losing steam.

This could stoke fears over both near-term stability and long-term growth prospects for South-east Asia’s second-largest economy.

Under the current constitution the next prime minister must be chosen from the list of candidates put forth in the most recent (2023) election. The House of Representatives will convene from Sep 3 to 5 to vote for a new prime minister.

The likeliest candidates are Chaikasem Nitsiri (Pheu Thai Party) and Anutin Charnvirakul (Bhumjaithai Party), both of whom are wooing the opposition People’s Party (which won the most seats last election but was blocked from power) for their backing.

If in the coming months parliament is able to appoint a prime minister from the eligible candidates, this should lead to some policy continuity in the months ahead, before an election is held, probably in the first quarter of 2026.

If no candidate secures the post, a confidence vote could dissolve parliament and set off a snap election.

Yet, past elections have seldom produced a strong mandate, raising the likelihood of another fragmented coalition, said OCBC’s senior Asean economist Lavanya Venkateswaran.

“This will lead to a scenario of heightened political uncertainty, where key engines of growth including investment spending remain on the sidelines until the uncertainty dissipates,” she added.

Decisive force

The Constitutional Court on Jul 1 suspended Paetongtarn, daughter of former prime minister Thaksin Shinawatra, from her premiership after the release of an audio clip of her controversial telephone conversation of Jun 15 with Cambodian strongman Hun Sen on the border situation.

She was dismissed on charges of seriously violating ethical standards. Paetongtarn was the fifth Thaksin-related politician/relative to be ousted from the premiership by the court, set up in 1997 as part of a liberal constitutional push that year to bolster the political party system while creating more independent bodies as checks and balances on political power.

The court has been effective in policing the ethical conduct of prime ministers, particularly those aligned with Thaksin. Thaksin, who was ousted in a 2006 military coup, returned to Thailand in 2023 after 15 years of self-exile to serve a one-year jail term for past crimes but spent it comfortably in a police hospital.

Thaksin is set to face charges of violating his jail terms at the Supreme Court on Sep 9, adding to the political uncertainties as he remains the de-facto leader of the Pheu Thai Party that has led the ruling collation government since 2023.

Fate of the national budget

Another big question is – how would the recent political developments affect the fiscal 2025/26 budget, which goes into effect on Oct 1.

The 3.73 trillion baht (S$148.6 billion) budget has already been approved by the Lower House and is currently with the Senate (which is expected to pass it soon), hence even a dissolution is unlikely to scuttle the Bill at this stage.

“The budget should be passed by the Senate and swiftly sent for royal accession well before parliament is dissolved,” said Erica Tay, economist for Maybank Investment Banking Group/Singapore.

But there are other worries about the budget, given the mounting political uncertainties and shifting alliances.

“What I worry about is the budget dispersion, which (if delayed) would probably compound the problems we will face in the second half of the year,” said Pavida Pananond, professor of international business at Thammasat University.

Analysts warn that prolonged wrangling among parties over forming a new government, in the absence of a clear successor, could delay policy support for Thailand’s sluggish economy, already under pressure from US tariffs.

CreditSights remarked in a report that there is also a heightened risk of “policy paralysis from political deadlocks”, in the event of a weak governing mandate – and potentially, even an early election, that add to the uncertainty, weighing on investor confidence.

Early signs of pressure

Thailand’s economy fared decently in the first half of this year, growing 3.2 per cent in Q1 2025 and 2.8 per cent in Q2 2025 year on year, but growth is expected to falter in the second half, achieving about 2 per cent for the entire year.

The good first-half performance was boosted primarily by robust exports which grew 14.4 per cent year on year in the first seven months of the year to reach US$195.4 billion, leaving Thailand with a small trade surplus of US$259.9 million, according to official data.

But this jump in exports was attributed mainly to front-loading by importers, especially in the US, before the imposition of tariffs instituted by US President Donald Trump.

Thailand, similar to its neighbours, now faces a 19 per cent tariff on its US exports as of Aug 7.

Thai exports to the US market grew 31.4 per cent in the first seven months, and accounted for 18 per cent of total exports.

Tourism started the year off strong but arrivals started to falter in Q2 2025, prompting the government to lower its target from 37 million visitors to 33 million.

While applications for foreign direct investment at the Board of Investment were high in the first half, it is unclear if Thailand’s political uncertainty will dampen the enthusiasm in the second.

“And if public investment is delayed that could be some kind of perfect storm, to be faced with so many engine slow-downs,” Prof Pavida said.

Perhaps more worrisome is the longer-term outlook for the Thai economy, in the face of the past 20 years of political instability and the lack of a political vision, or visionary, for the future.

“Political flux many limit the government’s capacity to formulate reforms and raise potential growth,” said Maybank’s Tay. “Structural reforms to improve human capital, spur new growth engines and sharpen competitiveness are needed to lift Thailand’s longer-term gross domestic product growth,” she said.

So far, the ruling political parties – excluding the People’s Party, which was barred from power after the last election – have failed to offer clear policies on economic reform and restructuring.

“You need to have a vision to take Thailand to the next level. But all the political parties, with the exception of People’s Party, have been picking the low-hanging fruit that might win them the next election,” said Prof Pavida.