Even when businesses were becoming more confident about the economic recovery and the trajectory of growth, consumers remained restrained. And for good reason. Since Mar-26, businesses no longer believe in economic recovery either.
The latest State Bank confidence surveys show a sharp deterioration across the board. Consumer confidence has fallen from 43 in Feb-26 to 36.1 in Jun-26, erasing nearly all the gains made over the previous year.
Business confidence has suffered an even steeper downfall, dropping from 55.3 to 48.2 over the same period and slipping back below the critical 50-point threshold that separates optimism from pessimism.
For the first time since the stabilization cycle began, both households and businesses are again expressing outright pessimism about economic conditions.
This reversal is significant because the headline macroeconomic picture still appears relatively stable. Inflation remains far below the crisis peaks of 2023. The current account is in surplus. Foreign exchange reserves are improving. The IMF program remains broadly on track. Interest rates have been reduced significantly from their peak levels. The fact is, business and more specifically consumers don’t always follow textbook economics. Again, for good reason.
There is a difference between stabilization and recovery. While Pakistan has largely succeeded in preventing another balance-of-payments crisis. It has not succeeded in restoring purchasing power. Households do not experience the economy through reserve accumulation, primary fiscal balances or current account surpluses. They experience it through grocery bills, school fees, utility charges and employment prospects. The inflation shock of 2022 and 2023 was not simply a temporary rise in prices. It permanently lifted the cost structure of daily life. Even though inflation rates have fallen, prices themselves have remained elevated. A household that saw food costs double and electricity bills multiply over two years does not feel relief simply because prices are now rising more slowly.
The recent petrol price hikes have already damaged the inflation slowdown, climbing once again to 11.6 percent to May-26. The confidence data reflects this too. Consumer inflation expectations remain stubbornly elevated at 72.7. Remarkably, inflation expectations today are almost identical to where they stood in February despite months of relatively moderate headline inflation. It is as if they either never believed it or their experiences have taught them that another price shock is only around the corner.
The labor market offers little reassurance. While some formal sectors have benefited from lower borrowing costs and macroeconomic stability, broad-based job creation remains weak. Many households continue to face stagnant wages that have failed to recover the purchasing power lost during the inflationary episode. For families whose incomes have barely moved while
living costs remain permanently higher, economic stabilization feels indistinguishable from economic stagnation.
Large scale manufacturing shows growth in construction, minerals and automobile sectors. But cement sales only suggest long-stalled construction projects are finally moving. The knock-on effects for income won’t show up tomorrow.
The decline in business confidence from below 50 in just four months suggests growing anxiety about demand conditions. Businesses are watching rates begin to go up again and consumer demand likely becoming stagnant. They can survive weak demand if growth prospects are
improving but the future seems bleak when stabilization lasted for barely a few months.
Policymakers spent the last two years repairing balance sheets, rebuilding reserves and restoring IMF confidence in macroeconomic stability.But market confidence ultimately depends on whether ordinary people feel their economic lives improving. Until real incomes recover, employment opportunities expand and purchasing power is restored, confidence will remain vulnerable to every disappointment and every shock.
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