Qudsia Bano

Business sentiment in Pakistan showed a gradual improvement during the second half of 2025, with diffusion index data released by the State Bank of Pakistan (SBP) indicating steady gains across confidence, production, employment and demand indicators between July and December.

The Business Confidence Index for the overall economy remained comfortably above the neutral 50 mark throughout the period, standing at 55.45 in July before easing slightly to 54.90 in December. Confidence within the industrial segment stayed in expansionary territory, supported by improvements in key operational indicators. Services-sector confidence also remained above 50, reflecting broadly stable business conditions despite persistent cost pressures.

General business conditions strengthened over the review period. The current conditions index improved from 51.40 in July to 52.30 in December, while expectations for general business conditions rose more sharply from 51.90 to 54.60, signalling increasing optimism regarding near-term economic activity.

Industrial activity indicators pointed to a pickup in momentum. The current production index stood at 52.52 in July and remained close to the expansion threshold at 49.50 in December, while expected production stayed elevated, rising from 57.55 to 58.70 over the period. Employment indicators also showed improvement, with the current employment index moving from 55.04 in July to 53.30 in December, while expected employment remained strong at 58.04 in December.

Demand-side indicators showed gradual strengthening. Current demand for credit remained above 50, easing slightly from 55.04 in July to 54.30 in December, while expected demand for credit stayed in expansionary territory, indicating a cautious but improving borrowing outlook. Access to bank credit improved modestly, with expected access rising from 52.15 in July to 52.40 in December.

Price pressures showed signs of stabilisation during the period. Input price expectations eased from 64.16 in July to 62.30 in December, while output price expectations declined more sharply from 64.42 to 51.50, pointing to reduced cost pass-through pressures toward year-end. Inventory conditions also improved, with the stock of finished goods index remaining close to the neutral level.

Purchasing Managers’ Index data for the industrial sector remained in expansionary territory. The PMI stood at 51.84 in July and 51.40 in December, supported by higher raw material purchases and improved supplier delivery times, indicating easing supply chain constraints.

Overall, the SBP’s data suggests that business activity and sentiment strengthened gradually during the latter half of 2025, with improvements in production, employment and expectations outweighing ongoing challenges related to costs and financing, and pointing to a more stable operating environment for businesses heading into the new year.

Credit: INP-WealthPk