The economy is recovering, at least for those who can afford a new car. But if you think that the recent cuts in interest rates, the rebound in Large Scale Manufacturing (LSM) and relatively tempered inflation numbers indicate the economy is in recovery, head over to the latest waves of SBP’s business and consumer confidence surveys which are diametrically opposed to what data may be telling.
Somewhere between data and lived experiences,the signal is being distorted. And there may be a strong reason why.
Over the past few years, chaotic as they were, income and wealth inequality has grown and it is becoming clearer than ever.
If you are on Pakistani roads, you cannot miss the massive billboards that once used to advertise clothing brands, now carrying large ads of new car launches. There are visibly and painfully more SUVs on the roads than ever before and sales coincide with that—in the first five months of FY26, car sales grew nearly 50 percent, and about a third of those sales were SUVs and light commercial vehicles; highest share ever.
The market share for passenger cars is slowly being taken over by a greater share of larger engines, but not because they are cheaper (obviously!). These are numbers from the Pakistan Automotive Manufacturers Association (PAMA) which will arguably be higher combining sales of newer non-PAMA members like Kia and Changan that are doing incredibly well.
Cement sales that feed construction are rising and financing costs to purchase homes has become more affordable with a government funded mark-up scheme up for grabs. Industrial output is up 5 percent.
Certainly, massive growthin car sales—and the share of SUVs rising—could be a barometer for upward income mobility.
Except, consumer sentiments betray these compelling numbers. In fact, consumer confidence in current conditions of the economy is persistently pessimistic and current consumer confidence is persistently below expectations. The latter indicates that despite hoping, households are feeling are not so confident about the economy. At the same time, inflation expectations for consumers remain firmly elevated. Household anxiety around prices have not been alleviated despite moderate single-digit inflation. Consumers are not convinced, and the careful cuts in interest rates by the SBP indicates that the Central Bank might not be either.
The surveys reveal more details. Current confidence is lowest amongst the least educated suggesting higher vulnerability, though respondents with higher education are also not optimistic suggesting that expectations for jobs and income growth are not being met.
In terms of professions, employees (compared to business-owners) are among the most pessimistic with persistently low confidence amid likely job insecurity and real wage erosion. This is supported by the unemployment index that shows that households are expecting unemployment to rise over the next few months.Labor markets are appearing stilted and weak.
Perhaps the most revealing cut comes with the survey data on income segmentation which shows that the lower income groups (earning below Rs55,000 per month) record the lowest consumer confidence and the highest inflation expectations. There is no middle-income optimism here either—income groups earnings between Rs55,000 to Rs200,000 also remain stagnantly pessimistic with inflation expectations mounting.
Meanwhile, the highest income group also shows the highest confidence level, though still below 50. Inflation is acting as the big equalizer in deciding where household confidence lands.
The rising share of SUVs is a dead giveaway where demand is coming primarily from higher income households while median households are still opting out. Very evidently though, this is shaping up to be a crisis of cost of living and income growth, or lack thereof.
In terms of consumption, households broadly believe now is not the right time to spend on big-ticket items like homes and automobiles (see graph). The intention to purchase automobiles or spend on home ownership is also dropping. More importantly, forward-looking intentions are more pessimistic than current ones showing sharper drops. This confirms that households do not expect affordability or incomes to improve meaningfully over the next year.
People aren’t just delaying purchases; they also don’t plan to make these purchases in the coming year. With unemployment anxieties rising, discretionary spending is the first to go.
It appears that growth is being driven by a thin slice of consumers.Let’s be clear: if there is recovery and optimism to be had, it is not being captured at the household level. And if the broad-based macro indicators suggest growth, it is one without mass participation.