Thailand's economy showed stronger-than-expected growth in the second quarter, driven by robust consumption, tourism, and export activities. However, analysts caution that the country's economic prospects are being overshadowed by increasing political uncertainty following a recent change in government.

According to data from the National Economic and Social Development Council (NESDC), Thailand's gross domestic product (GDP) grew by 2.3% year-on-year in the April-June quarter, surpassing the 2.1% growth forecasted in a Reuters poll and an upwardly revised 1.6% in the first quarter.

This growth marks an acceleration in Southeast Asia's second-largest economy, buoyed by improved government consumption, exports, and private consumption. Despite these gains, both public and private investments saw contractions.

On a quarterly basis, Thailand's GDP grew by a seasonally adjusted 0.8% in the second quarter, which was slower than the 1.2% expansion recorded in the previous quarter and below the 0.9% growth expected by analysts. This deceleration points to potential challenges ahead, particularly as the benefits from the tourism sector begin to fade.

Shivaan Tandon, a markets economist at Capital Economics, expressed concerns that economic growth may slow further in the coming quarters. He highlighted that the uncertainty surrounding Thailand's fiscal policy, now heightened by the recent political turmoil, could weigh on the economy. Tandon predicts that the Bank of Thailand may respond by cutting interest rates as early as October.

In the financial markets, Thailand's main stock index rose by 1.2% following the GDP report, while the baht strengthened by 0.5% against the U.S. dollar. Despite this, the central bank is expected to maintain its key interest rate at 2.50%-a decade-high level-when it meets on August 21, following a similar decision in June.

The NESDC has adjusted its GDP growth forecast for 2024 to a range of 2.3% to 2.8%, slightly narrowing its previous estimate of 2.0% to 3.0%. This cautious outlook reflects the challenges Thailand faces, including high household debt, elevated borrowing costs, and sluggish exports amid a slowdown in China, its top trading partner.

Adding to the economic headwinds is the recent political instability after a court order ousted former Prime Minister Srettha Thavisin for a constitutional violation related to a cabinet appointment. This political uncertainty is likely to cast a long shadow over Thailand's economic future, as investors and policymakers grapple with the implications of the ongoing turmoil.