Thailand's Political Uncertainty and Its Impact on Foreign Investment

Thailand’s political landscape in 2025 remains a complex interplay of leadership volatility, elite factionalism, and institutional inertia. The removal of Prime Minister Paetongtarn Shinawatra by the Constitutional Court in August 2025 has reignited tensions between populist and royalist-military factions, exacerbating uncertainties for foreign investors [1]. This instability, rooted in deep-seated divisions between pro-Thaksin Shinawatra and pro-military coalitions, has constrained the government’s ability to implement bold economic reforms, despite its reputation as a reliable partner for international agreements [2].

Political Fragmentation and Economic Consequences

The Pheu Thai-led coalition, which replaced General Prayut Chan-ocha’s military-backed administration in 2023, has struggled to balance reformist aspirations with the entrenched power of conservative elites. The dissolution of the reformist Move Forward Party (MFP) in 2024 over its challenge to the lese-majeste law epitomized the legal and institutional barriers to democratic progress [3]. As a result, Thailand’s GDP growth forecast for 2025 has been downgraded from 2.0% to 1.2–1.8%, with delayed budget implementation and stalled infrastructure projects compounding the slowdown [1]. The tourism sector, a cornerstone of the economy, faces additional risks as political turbulence deters high-season visitors [1].

Financial markets have mirrored this instability. The SET Index, Thailand’s benchmark stock market, fell 24% year-to-date through August 2025, reflecting investor anxiety over coalition fragility and the prime minister’s court case [1]. Foreign investors withdrew over $2.3 billion from Thai equities in 2025, with the baht depreciating to 32.8 per U.S. dollar, compounding economic pressures [1]. However, resilient sectors like banking and energy have attracted capital, underscoring the uneven impact of political risk [1].

Regional Context: Thailand in Southeast Asia’s Investment Landscape

Thailand’s political uncertainty contrasts with varying degrees of stability in its regional peers. Vietnam, under General Secretary To Lam, has consolidated power and attracted 8.1% year-on-year FDI growth in H1 2025, bolstered by structural reforms and trade clarity with the U.S. [4]. Malaysia, led by Prime Minister Anwar Ibrahim, has achieved greater political cohesion, leveraging "friendshoring" trends to secure investments in high-value manufacturing and technology [2]. Indonesia, meanwhile, faces its own challenges, with Q1 2025 GDP growth at 4.87%—its slowest in three years—due to weak exports and domestic consumption [5].

Political risk indices further highlight these disparities. Thailand’s 2025 Political Stability Index of -0.28 ranks it lower than Malaysia (0.17) and Vietnam (-0.04), though ahead of Indonesia (-0.4) [6]. The Political Risk Index (PRI) for 2025 places Thailand at 76, slightly below Malaysia’s 78 but above Indonesia and Vietnam’s 69 [7]. These metrics underscore Thailand’s precarious position: while it retains some appeal for foreign capital, its institutional fragility lags behind more stable neighbors.

Navigating Risks and Opportunities

Despite short-term volatility, Thailand’s long-term investment potential remains intact. The Eastern Economic Corridor (EEC) continues to draw interest, with 57 foreign projects launched in H1 2025 under the EEC, contributing 31% of total FDI [8]. Digitalization initiatives, including virtual banking licenses and a 110-billion-baht fiscal stimulus, also offer avenues for growth [1]. However, investors must weigh these opportunities against the risks of delayed reforms and currency fluctuations.

For foreign investors, a cautious, sector-specific approach is advisable. Resilient sectors like infrastructure, fintech, and energy present opportunities, while tourism and healthcare remain vulnerable to political shocks [1]. Currency hedging and close monitoring of coalition dynamics and snap election prospects are critical strategies [1].

Conclusion

Thailand’s political uncertainty in 2025 reflects a broader struggle between reformist aspirations and entrenched elite interests. While this environment introduces risks for foreign investors, the country’s strategic location, digital economy ambitions, and regional trade integration offer enduring appeal. Investors must navigate this duality by prioritizing resilient sectors, hedging against currency risks, and closely tracking political developments. As Southeast Asia’s investment landscape evolves, Thailand’s ability to balance stability with reform will determine its position as a destination for global capital.

Source:
[1] Thailand Protests 2025: What Foreign Investors Should Know [https://www.aseanbriefing.com/news/thailands-political-protests-implications-for-foreign-investors/]
[2] Southeast Asia Global Relations Outlook Part 2 [https://seapublicpolicy.org/southeast-asia-global-relations-outlook-part-2-the-asean-6/]
[3] Thailand's ongoing struggle for democratic stability [https://eastasiaforum.org/2025/02/11/thailands-ongoing-struggle-for-democratic-stability/]
[4] Vietnam and Southeast Asia: Diversified Value & Growth [https://www.globalxetfs.com/articles/vietnam-and-southeast-asia-diversified-value-and-growth/]
[5] Southeast Asia quarterly economic review: Q1 2025 [https://www.mckinsey.com/featured-insights/future-of-asia/southeast-asia-quarterly-economic-review]
[6] Political stability in South East Asia [https://www.theglobaleconomy.com/rankings/wb_political_stability/South-East-Asia/]
[7] Regional Political Risk Index [https://www.prsgroup.com/regional-political-risk-index/]
[8] First Half of 2025 Sees 139% Growth in Foreign Direct Investment Into Thailand [https://www.bizwings.co/post/first-half-of-2025-sees-139-growth-in-foreign-direct-investment-into-thailand-reaching-usd-32-5-b]