Pakistan business confidence rebounds in Q2, but budget concerns persist

Business confidence in Pakistan rebounded during the second quarter of 2026 as companies reported improving business conditions and a more optimistic outlook, although concerns over the federal budget, inflation and power shortages continued to weigh on sentiment, according to the latest Business Confidence Index released by Gallup Pakistan.

The survey, conducted from July 2 to July 7 among 527 businesses across the manufacturing, services, construction, financial services, and wholesale and retail sectors, showed improvement across all three major components of the index.

The Current Business Conditions score improved by nine percentage points to negative 10%, from negative 19% in the first quarter of 2026.

About 45% of businesses described current conditions as good, up four percentage points from the previous quarter.

The strongest improvement came in the Future Business Conditions score, which rose by 25 percentage points to positive 12%, turning positive for the first time in three quarters. Fifty-six percent of respondents said they expected business conditions to improve over the next 12 months.

The Direction of the Country score also improved by 12 percentage points to negative 20%, although it remained in negative territory.

Gallup Pakistan said part of the improvement in sentiment appeared to reflect easing external uncertainty following the resolution of the Iran-U.S. conflict and a subsequent decline in fuel prices ahead of the survey period.

"There is no doubt there is recovery in business confidence in the country; however, indicators remain in negative territory despite this recovery," said Bilal I. Gilani, executive director of Gallup Pakistan.

Despite the improved sentiment, businesses continued to face significant operational pressures.

Inflation remained the most frequently cited concern, with 34% of respondents identifying it as the top issue they wanted the government to address.

Load-shedding also worsened, with 72% of businesses reporting power outages on the day of the survey, up 15 percentage points from the previous quarter and above levels recorded in 2023 and 2024.

Businesses' assessment of the FY2026-27 federal budget remained largely negative. Thirty-nine percent of respondents viewed the budget negatively, compared with 18% who viewed it positively.

Nearly half of respondents, or 49%, said they had little confidence in their business prospects over the next 12 months because of the budget, while 36% expressed confidence.

Similarly, 49% expected the budget to increase the cost of doing business, compared with 22% who anticipated lower costs. Meanwhile, 34% said the budget made them less likely to invest or expand, while only 22% said it made them more likely to do so.

Gallup Pakistan said the budget-related findings were particularly significant because all four measures remained in net negative territory despite the broader recovery in business confidence.

"The recovery in sentiment hasn't extended to the budget," Gilani said. "Businesses are feeling somewhat better about where things stand and where they are headed, but they do not yet trust that fiscal policy is working in their favour."

Gallup Pakistan said sustained improvements in inflation, energy supply and operating costs would be needed before the latest rebound could be considered a durable turning point.

The Gallup Pakistan Business Confidence Index has tracked business sentiment since the second quarter of 2020. The latest survey covered businesses across 40 districts and cities in all four provinces, Azad Jammu and Kashmir, and Malakand.