Policy standstill key economic risk in 2026

February election and its aftermath in Thailand will slow fiscal disbursements, says HSBC Global Investment Research

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Uncertainty lingered over Thailand during the second half of 2025, but the private sector — calm and collected — kept the economy afloat.

Tensions between Cambodia and Thailand escalated, disrupting trade between the two neighbours, while stoking safety concerns for potential tourists.

There were even concerns the US might impose higher tariff rates on both countries if tensions did not deescalate.

However, after tensions flared into armed conflict in July, Thailand found itself in a difficult position. The Constitutional Court removed Paetongtarn Shinawatra as prime minister after the leak of a compromising phone conversation with former Cambodian premier Hun Sen. The cabinet was dissolved and for the third time in three years, Thailand sought a new prime minister. With the help of the opposition People’s Party, the Bhumjaithai Party formed a minority government with Anutin Charnvirakul at the helm.

Amid all the uncertainty in politics and policy, growth disappointed in the third quarter of 2025, falling by 0.6% from the previous quarter. Services exports continued to contract as the tourism sector tried to regain its footing after a stumble earlier in the year.

Meanwhile, passing the baton from one prime minister to another was a two-month process, which eventually led to a fiscal standstill. Government spending fell, dragging growth down by as much 1.1 percentage points.

However, despite lingering uncertainty the private sector held its ground. Private consumption was supported by low inflation and remained steady, while private investment was robust. In fact, foreign investments flowed in — defying uncertainties around tariffs and global trade — and goods exports still grew as electronics manufacturers captured the boom in artificial intelligence-related investments, all while gaining market share in the US at the expense of China.