Following a recent attack in Pahalgam, tensions between India and Pakistan have escalated. As a result, the Pakistan Stock Exchange experienced a sharp early decline, reflecting growing investor anxiety. India announced five major retaliatory measures, including the suspension of key trade routes. Pakistan quickly reacted by suspending trade and closing its airspace to Indian flights.
The Attari-Wagah corridor had remained operational for years despite previous incidents. It contributed significantly to trade, handling goods worth around $451 million in 2023-24. Essential items like soybeans, vegetables, and plastic products were commonly shipped. Now, trade disruptions are expected to cause supply-chain delays and increase costs.
Impact on Supply Chains and Inflation Risks
Exporters will need to reroute goods through longer and costlier alternatives. This shift is likely to cause delays and price hikes for essential commodities. While inflation in Pakistan had recently shown signs of easing, broader economic vulnerabilities could worsen.
The halt in trade will strain not only consumers but also small businesses dependent on imported goods. As a result, structural economic challenges in Pakistan might deepen if tensions persist.
Pakistan Stock Exchange Faces Heavy Losses
The Pakistan Stock Exchange witnessed a sharp downturn amid growing uncertainty. On the same day, the Karachi Stock Exchange plunged by over 1,300 points, recording a loss of 1.10 per cent.
A Reuters report noted that investors began withdrawing capital rapidly, fearing instability. Analysts believe that sustained tensions could further weaken market sentiment. The Pakistan Stock Exchange may continue to face volatility unless there is a de-escalation.
Meanwhile, concerns over future investments have also risen, given the ongoing political and security issues.
International Agencies Adjust Growth Outlook
The global financial community is also closely watching the situation. The International Monetary Fund (IMF) has downgraded Pakistan’s expected GDP growth from 3 per cent to 2.6 per cent.
Similarly, Fitch Ratings warned that Pakistan’s currency could depreciate further due to widening current account deficits. Both agencies have highlighted political uncertainty and regional instability as major risk factors.
Pakistan now faces mounting pressure to stabilize its economy and reassure global investors. Otherwise, achieving sustained growth may become more difficult in the near future.
Indian Markets Display Resilience
In contrast, Indian financial markets have remained largely unaffected. The Sensex, India’s key stock index, posted gains for a seventh straight session. The market recorded an impressive 8.48 per cent increase over the week.
Experts suggest that investor confidence in India remains strong despite regional tensions. Strong domestic indicators and resilient economic fundamentals have helped maintain stability.
This divergence in market reactions underscores the different economic challenges facing the two neighboring countries.