Thailand will hold general elections on February 8, 2026, against a tough economic backdrop. GDP growth is expected to slow to 1.6%, while inflation will remain negative. These elections are likely to lead to a multi-party coalition government, with caution prevailing until policies are clarified. Many expect cautious sentiment to dominate due to uncertainties surrounding the election. This caution might continue into the first half of 2026 until a government is formed and policies are set.

Economic Impact of Upcoming Elections

GDP growth is projected to drop to 1.6% from slightly over 2% in 2025. If there is a political deadlock, the budget process for FY2027 could face disruptions, influencing fiscal disbursements three to four quarters after the elections. As general elections approach on February 8, we expect a significant rise in market volatility. Although cautious investor sentiment is already factored in, major movements will happen once the election results reveal the new multi-party coalition. The uncertainty about policy direction will likely keep the market anxious for weeks or even months. We’re noticing a sharp rise in option costs as traders prepare for price fluctuations. The SET50 index’s implied volatility has surged to a six-month high of 22%, showing the market’s concern over a potentially divided government. This suggests that strategies benefiting from volatility, like buying straddles or strangles on SET50 futures, may be effective.

Currency and Market Reactions

The Thai Baht is another important factor to monitor, as political instability could lead to capital outflows. The baht has already weakened by over 2% against the US dollar since the start of the year, and we may see further declines until a stable government is established. Traders might think about buying USD/THB call options to hedge against or speculate on further baht weakness. Looking back at the 2019 election, it took over two months to form a government, during which the SET Index fell nearly 4%. This history suggests that any post-election rally could be short-lived until we have clarity on the new cabinet and its economic team. A similar period of uncertainty and market stagnation is likely this time as well. Given the broader economic situation, with GDP growth declining from 2.2% in 2025 to a projected 1.6% this year, a defensive strategy is warranted. Delays in the FY2027 budget process could severely impact public spending and further slow growth. Thus, buying protective puts on banking or construction sector ETFs could be a wise move to protect portfolios from potential downturns. Create your live VT Markets account and start trading now.

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