Pakistan business confidence drops as energy costs and tensions bite

Pakistan's private sector entered the second quarter of 2026 under growing strain after a new Gallup Pakistan survey showed a clear deterioration in business sentiment across the country. Released on Friday, the study points to rising energy costs, inflationary pressure and fallout from regional tensions as the main forces weighing on firms, with a majority of respondents saying operating conditions had become more difficult.

The latest quarterly survey was based on responses from 510 businesses and found that confidence weakened across all of its major indicators. Only 41 percent of respondents described their current business situation as good or very good, a notable decline from the previous quarter. The overall balance of positive assessments also fell sharply, suggesting that the modest improvement seen earlier has given way to renewed caution in boardrooms and shop floors alike.

Expectations for the months ahead were also subdued. While 44 percent of firms said they still saw room for improvement, 57 percent believed conditions were likely to worsen, pushing the future confidence reading deeper into negative territory. Sentiment about the country's overall direction also slipped, with the national outlook score dropping to minus 32 percent from minus 8 percent in the previous quarter. Together, those figures indicate that businesses are no longer worried only about immediate costs, but are also becoming less convinced that the wider economic environment will stabilise soon.

Gallup Pakistan's executive director, Bilal I Gilani, said the decline was significant because it appeared simultaneously across current performance, future expectations and perceptions of national direction. That broad-based weakness suggests pessimism is not limited to one sector or one region. The survey also found that views of governance have become less favorable, with 46 percent of respondents saying the quality of economic management had worsened, compared with 33 percent who reported improvement.

The cost structure facing firms appears to be at the centre of the problem. Inflation remained the single biggest concern, cited by 37 percent of businesses, while anxiety over fuel and petrol prices rose to 25 percent. Loadshedding was another major complaint, with 57 percent of firms saying they experienced power outages on the day they were surveyed, a 15-point increase from the previous quarter. In practical terms, that means businesses are dealing with a combination of higher input bills, unreliable energy supply and tighter margins at the same time.

Regional instability has added another layer of uncertainty. According to the survey, 81 percent of respondents said developments in the Middle East had affected them negatively, mainly through higher fuel and energy costs. Nearly 58 percent reported an increase in energy expenses, while 73 percent said their overall costs had gone up compared with the previous quarter. Those responses underline how quickly external shocks can travel into Pakistan's domestic economy, especially through imported energy, transport and production costs.

The findings are particularly important because they reverse the sense of recovery that had started to emerge after earlier improvements in sentiment. Businesses in Pakistan have spent years navigating inflation, exchange-rate stress, power shortages and weak consumer demand. When confidence falls at the same time as costs rise, companies often postpone expansion plans, slow hiring, cut inventories and turn more defensive in their spending. That can reduce investment momentum even before the slowdown becomes visible in broader growth figures.

For Pakistan, the implications go beyond the corporate sector. Lower confidence in the private economy can translate into weaker employment creation, softer tax receipts, restrained industrial activity and more pressure on consumers already dealing with elevated living costs. Smaller firms are especially vulnerable because they have less room to absorb increases in electricity, fuel and financing costs, making them more likely to pass higher prices on to households or reduce operations.

The next quarter will now be closely watched for signs of whether the downturn in sentiment is temporary or the start of a longer slowdown. Much will depend on whether inflation eases, energy supply becomes more reliable and regional tensions stop feeding into domestic cost pressures. Until then, the Gallup survey suggests that Pakistan's business community is preparing for a more difficult operating environment rather than a near-term rebound.