PSE Divergence Confirmed — The September Breakout That Redefined Philippine Mining in the Age of Fiat Disorder

 

The choice of the good to be employed as a medium of exchange and as money is never indifferent. It determines the course of the cash-induced changes in purchasing power. The question is only who should make the choice: the people buying and selling on the market, or the government? It was the market that, in a selective process going on for ages, finally assigned to the precious metals gold and silver the character of money. For two hundred years the governments have interfered with the market’s choice of the money medium. Even the most bigoted étatists do not venture to assert that this interference has proved beneficial—Ludwig von Mises 

In this issue 

PSE Divergence Confirmed — The September Breakout That Redefined Philippine Mining in the Age of Fiat Disorder

I. April 2023: The Thesis That Time Has Now Validated

II. September’s Seismic Shift: Mining Index Outpaces the PSEi

III. The Fiat Fracture: Gold's Three-Legged Bull Market and the Chronicle of Monetary Rupture

IV. Gold as Signal of Systemic Stress

V. Fracture Points: Tumultuous Geopolitics and the New War Economy

VI. A Militarized Global Economy and The Fiscal–Military Feedback Loop

VII. Economic Warfare: Tariffs, Fragmentation, and Supply Chain Bifurcation

VIII. World Central Banks Signal Distrust: The Gold Accumulation Surge and Fiat Erosion

IX. The Paradox of Philippine Mining Reform: Bureaucratic Control over Market Forces

X. The Philippine Mining Index Breakout: Gold Leads, Nickel Surprises, Copper Lags and the Speculative Spillover

XI. Conclusion: The Uneasy Return of Hard Assets in a Soft-Money World 

PSE Divergence Confirmed — The September Breakout That Redefined Philippine Mining in the Age of Fiat Disorder 

Beyond the PSEi: Tracking the Philippine Mining Index's decoupling, the gold-fiat fracture, and the systemic risks that power resource equities. 

I. April 2023: The Thesis That Time Has Now Validated

Figure 1 

Back in April 2023, we predicted that rising gold prices would boost the Philippine mining index for several reasons: (see reference) 

1. Unpopular – It is the most unpopular and possibly the "least owned" sector—even "the institutional punters have likely ignored the industry." As proof, it had the "smallest share of the monthly trading volume since 2013." 

2. Lack of Correlation – "its lack of correlation with the PSEi 30 should make it a worthy diversifier" 

3. Potential Divergence – We wrote that "the current climate of overindebtedness and rising rates seen with most mainstream issues, the market may likely have second thoughts about this disfavored sector. Soon." 

4. Formative Bubble – We posed that "If the advent of the era of fragmentation or the age of inflation materializes, could the consensus eventually be chasing a new bubble?" 

Well, media coverage hardly noticed it, but the relative performance of the Mining sector vis-à-vis the PSEi 30—or the Mining/PSEi ratio—made significant headway last September. It critically untethered from its 5-year consolidation phase. (Figure 1, topmost chart) 

Recall: mines suffered a brutal 9-year bear market from 2012 to 2020. The Mining/PSEi ratio hit its secular low during the pandemic recession, pirouetted to the upside, peaked in September 2022, but remained rangebound—nickel lagged, and gold lacked sufficient momentum to lift the index. 

II. September’s Seismic Shift: Mining Index Outpaces the PSEi 

That dramatically changed in September. The Mining/PSEi ratio experienced a seismic breakout, powered by a decisive thrust in gold mines, buoyed further by surging nickel mines. 

But this time may be different. The 2002–2012 bull cycle was driven by Mines outrunning a similarly bristling PSEi 30. Today, the Mines are diverging—operating antithetically from the broader index—a potential reflection of gradual and reticent transition of market leadership. (Figure 1, middle graph) 

The September numbers underscore the shift (Figure 1, lowest table) 

PSEi 30: –3.28% MoM, –18.14% YoY, –6.46% QoQ, –8.81% YTD

Mining Index: +25.86% MoM, +47.97% YoY, +35.07% QoQ, +63.96% YTD 

So yes, it fulfilled our projections of a bull market in motion while validating our ‘diversifier’ thesis. Still, despite its massive run, the sector remains disfavored—its share of the monthly main board volume remains the smallest.

Figure 2

Even with the gaming sector’s bubble showing cracks, speculative interest in PLUS and BLOOM (at 4.38%) nearly matched the ten-issue Mining Index (4.46%) in September. In short, market sentiment still favors gaming over mining. (Figure 2, topmost image) 

Ultimately, the mining sector’s performance—and its transition to a potential secular bull market—will hinge on its underlying commodities. 

In 2016, we wrote, 

Divergence or rotation can only be affirmed when gold mining stocks will move independently from the mainstream stocks. The best evidence will emerge when both will move in opposite directions. This had been the case from 2012 through 2015 when miners collapsed while the bubble industries blossomed. It should be a curiosity to see when both trade places. Time will tell. [italics original] (Prudent Investor, 2016) 

That’s a bullseye!

III. The Fiat Fracture: Gold's Three-Legged Bull Market and the Chronicle of Monetary Rupture 

Gold’s long-term ascent is a chronicle of monetary rupture. (Figure 2, middle chart) 

The first major break came under Franklin D. Roosevelt, with Executive Order 6102 (1933) and the Gold Reserve Act (1934), which outlawed private gold ownership and revalued the dollar’s gold peg from $20.67 to $35 per ounce. This statutory debasement set the modern precedent for political interference in money. 

The second rupture—Nixon’s 1971 “shock” ending Bretton Woods convertibility—ushered in the fiat era. Untethered from monetary discipline, gold surged from $35 to ~$670 by September 1980, a 19x return over nine years, driven by double-digit inflation, oil shocks, and institutional distrust. This marked the first leg of the post-gold-standard bull cycle under the U.S. dollar’s fiat regime. 

The second leg (2001–2012) unfolded over eleven years, beginning around $265 in February 2001 and peaking near $1,738 in January 2012—a 6.6x return. 

This phase reflected a response to cascading financial crises and aggressive monetary easing: the dotcom bust, 9/11, the Global Financial Crisis, and the Eurozone debt spiral. Central bank interventions—QE and ZIRP from the Fed and ECB—amplified gold’s role as a hedge against fiat dilution. 

The third leg (2015–) began in late 2015, bottoming near $1,050 in the aftermath of China’s devaluation. Over the next decade thru today, gold climbed past $3,800—a ~3.6x return—driven by global central bank accumulation, geopolitical fracture, asset bubbles, inflation spillovers, and record leverage across public and private sectors. 

As a sanctuary asset, gold has not only preserved purchasing power but also signaled systemic fragility. Real (inflation-adjusted) prices have reached all-time highs, underscoring gold’s function as a monetary barometer. (Figure 2, lowest diagram) 

Today, its strength reflects more than cyclical momentum—it mirrors the widening cracks of the fiat era. 

Gold’s trajectory—marked by 9-, 11-, and 10-year legs—suggests that mining valuations may be more tightly coupled to global monetary dysfunction than domestic policy alone. 

With gold now approaching USD 4,000, history suggests we may well see prices reach at least USD 6,000.

For resource-driven economies like the Philippines, this episodic repricing offers a potent lens for evaluating mining equities.  Rising gold valuations, persistent inflation, and the flight to real assets amid waning faith in fiat systems suggest that mining performance may be more tightly coupled to global monetary dysfunction than domestic policy alone. 

Still, each leg has emerged from distinct fundamentals—past performance may rhyme, but not reprise. 

IV. Gold as Signal of Systemic Stress 

Last March, we launched a three-part series forecasting that gold would sustain its record-breaking run. 

In the first installment, we argued that gold has historically served as a leading indicator of economic and financial stress: "gold’s record-breaking runs have consistently foreshadowed major recessions, economic crises, and geopolitical upheavals."

Figure 3 

Today, that reflexive relationship remains in play. 

As global growth falters under the weight of fiscal imbalance and geopolitical strain, central banks have turned decisively toward rate cuts, reversing the tightening cycle that began in 2022. By September, the scale of collective policy easing has already approached pandemic-era levels, underscoring a synchronized monetary response to mounting economic stress. (Figure 3, topmost window) 

V. Fracture Points: Tumultuous Geopolitics and the New War Economy 

In the second part, we explored how monetary disorder underpins gold’s sustained upside. "Gold’s record-breaking rise may signal mounting fissures in today’s fiat money system, " we wrote, “fissures expressed through escalating geopolitical and geoeconomic stress. "  

Those fissures have widened. Over the past month, geopolitical tensions have intensified across multiple fronts, amplifying systemic risks for both commodity markets and global capital flows. In Europe, the Ukraine war has evolved from proxy engagement to near-direct confrontation, punctuated by Putin’s claim that "all NATO countries are fighting us." 

Hungarian Prime Minister Viktor Orbán echoed this unease, posting on X: (Figure 3, middle picture) 

"Brussels has chosen a strategy of wearing Russia down through endless war… sacrificing Europe’s economy, and sending hundreds of thousands to die at the front. Hungary rejects this. Europe must negotiate for peace, not pursue endless war." 

Paradoxically, Hungary is part of EU and NATO. 

In the Middle East, Trump’s proposed Gaza peace plan has been welcomed by parts of the EU but criticized by both Israeli hardliners and Hamas, exposing deep political rifts that could derail any lasting truce. 

Washington has also expanded its Caribbean military buildup apparently eyeing Venezuela—a Russian ally—under the pretext of targeting “drug smugglers.” 

Compounding these tensions are the looming U.S. government shutdown, ICE-fueled riots, EU fragmentation, and territorial disputes across Asia (including the Thai-Cambodia and South China Sea flashpoints). Together, these developments erode international interdependence and deepen the sense of global instability. 

VI. A Militarized Global Economy and The Fiscal–Military Feedback Loop 

Adding fuel to the fire, debt-financed fiscal stimulus through military spending has reached unprecedented scale. According to SIPRI, global military expenditures rose 9.4% in real terms to $2.718 trillion in 2024—the highest total ever recorded and the tenth consecutive year of increase. (Figure 3, lowest visual) 

This war economy buildup echoes historical patterns, where militarism became not just a tool of statecraft but a structural imperative. 

Modern defense economies increasingly resemble historical warrior societies such as Bushido Japan, Sparta, and Napoleonic France, where militarism evolved from a tool of power into a systemic necessity. 

In these societies, idle warriors or elite military classes threatened internal stability, compelling leaders to redirect aggression outward. Hideyoshi’s invasion of Korea, for instance, was less about conquest than about pacifying a restless samurai class. 

Today’s massive defense spending serves a parallel function: sustaining industrial output, protecting elite interests, and demanding perpetual geopolitical justification. The result is a fiscal–military feedback loop in which peace itself undermines the architecture of power. 

This militarized economic order breeds a dangerous paradox: when growth depends on arms production and deterrence, the line between defense and aggression dissolves. As nations over-arm to preserve influence and momentum, the world risks sliding into a self-fulfilling conflict dynamic—where fiscal expansion, political ambition, and national pride coalesce into the very forces that once ignited global wars. 

VII. Economic Warfare: Tariffs, Fragmentation, and Supply Chain Bifurcation 

These geopolitical flashpoints are layered atop escalating geoeconomic risks that mirror economic warfare. 

The U.S. has rolled out sweeping new tariffs—10% on lumber and 25% on furniture and cabinetry—adding to earlier steel and aluminum levies that have rattled European industries. With a stronger euro hurting export competitiveness and rising trade barriers disrupting supply chains, Europe’s manufacturing base faces mounting stress. 

The U.S. recently raised tariffs on Philippine exports to 19%, part of a broader “reciprocal” trade posture that threatens ASEAN and EU economies alike. Export controls targeting Chinese tech and semiconductor firms underscore the growing bifurcation of global supply chains, especially in the AI and chip sectors. 

VIII. World Central Banks Signal Distrust: The Gold Accumulation Surge and Fiat Erosion

Figure 4

Amid this widening fragmentation, central banks have accelerated their gold accumulation—buying despite record-high prices. 

As the World Gold Council reported, central banks added a net 15 tonnes of gold in August, consistent with the March–June monthly average, marking a rebound after July’s pause. Seven central banks reported increases of at least one tonne, while only two reduced holdings. (Figure 4, topmost and middle charts) 

Notably, as political institutions, central bank reserve management decisions are not profit but politically driven. 

The Bangko Sentral ng Pilipinas (BSP), additionally, was the world’s largest seller of gold reserves in 2024, citing profit-taking at higher prices. Yet in 2025, it resumed small purchases—ironically, at even higher price levels. (Figure 4, lowest graph)  

Figure 5 

Measured in Philippine pesos, gold and silver prices are extending their streak of record-breaking highs (Figure 5, upper window) 

As history reminds us, the BSP’s massive gold sales in 2020 preceded the 2022 USD/PHP spike, suggesting that the 2024 divestment—intended to support the peso’s soft peg—could again foreshadow a breakout above PHP 59, perhaps by 2026? 

Most strikingly, global central banks’ gold reserves have grown so rapidly that their aggregate gold holdings are now nearly on par with U.S. Treasury holdings—a clear sign of eroding faith in the contemporary U.S. dollar-based order. (Figure 5, lower image) 

The modern-day Thucydides Trap—intensifying hegemonic competition expressed not only in geopolitics, but also in economic, financial, and monetary spheres—has increasingly powered the gold-silver tandem. 

Viewed in this light, as gold rises against all currencies, the message is clear: it is not gold that’s appreciating, but fiat money that’s depreciating. Gold is no longer just insurance asset— it is, and remains, money itself. 

IX. The Paradox of Philippine Mining Reform: Bureaucratic Control over Market Forces 

In the absence of commodity spot and futures markets—a critical handicap to price discovery, risk management, and capital formation—the state’s default response has been to expand taxation and administrative controls instead of developing genuine market mechanisms. 

Rather than pursuing market liberalization or introducing commodity exchanges to improve efficiency and productivity, the Philippine social democratic paradigm of reform remains fixated on taxation, administration, and bureaucratic control. 

The passage of the Enhanced Fiscal Regime for Large-Scale Metallic Mining Act (RA 12253) and the push for the Mining Fiscal Reform Bill mark the government’s latest attempt to "modernize" the fiscal framework of the mining industry. 

On paper, these reforms promise stronger oversight, greater transparency, and a "fairer share" of mineral wealth between the state and the private sector. The new regime introduces margin-based royalties, a windfall profits tax, and project-level accounting rules meant to simplify tax compliance and reduce leakages. Yet, beyond the reformist veneer lies a system still anchored on bureaucratic discretion—where regulators retain broad authority to interpret profitability thresholds, accounting standards, and tax computations. 

In practice, this discretion perpetuates the opacity and arbitrariness that the law sought to correct. Rather than institutionalizing transparency, the framework risks entrenching regulatory capture, enabling bureaucrats to negotiate or manipulate fiscal obligations behind closed doors. 

The very mechanisms intended to enhance oversight—royalty audits, windfall assessments, and transfer pricing reviews—may instead become new venues for rent-seeking and selective enforcement. This tension between statutory ambition and administrative reality leaves the industry vulnerable not only to corruption but also to uneven enforcement across operators and regions—cronyism. 

In the short term, elevated metal prices could conceal these governance flaws, boosting fiscal receipts and lifting mining equities under the illusion of reform-led success. But when the commodity cycle turns, the cracks will widen: weak oversight, inconsistent standards, and arbitrary taxation could resurface as deterrents to investment and valuation stability. 

Thus, what was framed as a fiscal modernization drive may ultimately reinforce the industry’s old paradox—where boom times mask systemic fragility, and reforms collapse when prices fall. 

X. The Philippine Mining Index Breakout: Gold Leads, Nickel Surprises, Copper Lags and the Speculative Spillover 

Lastly, while gold mining shares primarily contributed to the breakout of the Philippine Mining Index, nickel mines also sprang to life and added to the rally. The Philippine Stock Exchange recalibrated the composition of the Mining Index last August to reflect sectoral momentum. 

Gold-copper Lepanto A and B replaced Benguet A and B, while gold-silver miner Oceana Gold was newly included.

Figure 6

This partial reconstitution, combined with price action, reshaped the index’s internal weightings: as of October 3, gold-copper mines accounted for 74.65%, nickel 23.53%, and oil just 1.83%—a notable shift from March 31’s 68.3%-27.44%-4.25% distribution. (Figure 6 topmost graph)

From March 31st to October 3rd, gold mining shares surged 112%, driven by tailwinds from soaring gold and silver prices. Nickel mining shares, surprisingly, jumped 66.4% despite depressed global nickel prices. Meanwhile, solo oil exploration firm PXP Energy sank 16.5%. 

The biggest ranked mines in the index, in descending order, were Apex Mining, OceanaGold, Philex, Nickel Asia, and Atlas Consolidated. (Figure 6, second to the top image) 

USD prices of Silver and Copper surging while Nickel consolidates. (Figure 6 second to the lowest visual) 

While gold’s rally was the primary engine of the index breakout—amplified by the inclusion of more gold-heavy names—the rebound in nickel miners was more ironic. 

With easy money fueling an “everything bubble,” a rising tide appears to be lifting all mining boats. 

Another factor is that local nickel miners have mirrored the moves of international ETFs such as the Sprott Nickel Miners ETF [Nasdaq: NIKL], which advanced largely on global liquidity flows rather than on improvements in the underlying metal market. (Figure 6, lowest diagram) 

In essence, the surge in nickel shares reflects financial rotation and speculative spillover—capital chasing laggards and cyclical exposure amid abundant liquidity—rather than any meaningful recovery in nickel fundamentals. If the bids are to be believed, nickel prices would eventually have to rise and remain elevated; otherwise, the rally risks running ahead of earnings reality. 

Meanwhile, despite a resurgent copper price—also mirrored in ETFs like the Sprott Copper Miners ETF [Nasdaq: COPP]—some local copper mines have made little progress in scaling higher. 

We are yet to see substantial breakouts from the peripheral mines, suggesting that speculative flows have been highly selective, favoring liquidity and index-weighted names over broader participation. 

Ironically, the divergence between copper and nickel prices underscores the fragility of the latter’s mining rally. 

While copper’s surge has been confirmed by both spot prices and mining equities—reflected in the coherent ascent of ETFs like COPP—nickel’s stagnation contrasts sharply with the outsized gains in nickel mining shares and ETFs like NIKL. 

This disconnect suggests mispricing: a speculative equity bid front-running a commodity rebound that hasn’t arrived. Without confirmation from the metal itself, the feedback loop sustaining nickel equities risks collapse, exposing the rally as a liquidity mirage rather than a durable trend. 

XI. Conclusion: The Uneasy Return of Hard Assets in a Soft-Money World 

The Philippine mining sector’s transformation from pariah to rising star is both cyclical and structural. It reflects not only higher commodity prices but also the global search for hard assets in an era of currency debasement, geopolitical fracture, and policy incoherence. 

Gold’s rise tells a story of distrust in fiat money; nickel’s divergence, of speculative excess born of liquidity overflow. 

The mining index’s ascent thus mirrors the world’s economic psychology—a blend of fear and greed, of safe-haven accumulation and ultra-loose money–financed speculative rotation. 

Whether this is a sustainable repricing or a liquidity mirage will depend on whether global monetary and fiscal regimes stabilize—or fracture further. The former seems close to impossible; the latter, increasingly probable. 

Either way, the Philippine mining story has become a proxy for something much larger: the uneasy return of hard assets in a soft-money world. 

Postscript: No trend moves in a straight line. Gold, silver, and Philippine mining shares are now extensively overbought—inviting a countercyclical pause, not an end, to their ascent. 

____

References 

Ludwig von Mises, The Real Meaning of Inflation and Deflation, January 2, 2024, Mises.org 

Prudent Investor Newsletter, Investing Gamechanger: Commodities and the Philippine Mining Index as Major Beneficiaries of the Shifting Geopolitical Winds! Substack, April 27, 2023 

Prudent Investor Newsletter, Phisix 6,650: Resurgent Gold, Will Mining Sector Lead in 2016? Negative Yield Spread Hits 1 Month Bill-10 Year Treasuries!, Blogspot February 15, 2016 

Prudent Investor Newsletter Do Gold’s Historic Highs Predict a Coming Crisis? Substack, March 30, 2025 

Prudent Investor Newsletter, Gold’s Record Run: Signals of Crisis or a Potential Shift in the Monetary Order? (2nd of 3 Part Series), Substack, March 31, 2025 

Prudent Investor Newsletter, How Surging Gold Prices Could Impact the Philippine Mining Industry (3rd of 3 Series), Substack, April 02, 2025 

Prudent Investor Newsletter, The Long-Term Price Trend and Investment Perspective of Gold, Blogspot, August 02, 2020  

The Philippine Flood Control Scandal: Systemic Failure and Central Bank Complicity

 

Today the fashionable philosophy of Statolatry has obfuscated the issue. The political conflicts are no longer seen as struggles between groups of men. They are considered a war between two principles, the good and the bad. The good is embodied in the great god State, the materialization of the eternal idea of morality, and the bad in the "rugged individualism" of selfish men. In this antagonism the State is always right and the individual always wrong. The State is the representative of the commonweal, of justice, civilization, and superior wisdom. The individual is a poor wretch, a vicious fool—Ludwig von Mises 

In this issue

The Philippine Flood Control Scandal: Systemic Failure and Central Bank Complicity

I. ‘Shocked’ or Complicit? The Nexus of Policy and Corruption

II. A Financial System in Cartel’s Grip

III. Structural Failure, Not Just Regulatory Lapse; Virtue-Signaling Over Solution

IV. BSP Withdrawal Caps as Capital Controls: Six Dangers

V. Liquidity Theater and the Politics of Survival

VI. Systemic Risks on the Horizon

VII. Political Survival via Institutional Sacrifice; The Kabuki Commission

VIII. The Political Playbook: Delay, Distract, Dissolve

IX. Historical Parallels: When Economics Ignite Revolutions

X. The Strawman of Fiscal Stability and Revenue Realities

XI. Expenditure Retrenchment and the Infrastructure Dependency Trap

XII. The Keynesian Paradox, Liquidity Trap and Deposit Flight

XIII. PSE’s Sleight of Hand on CMEPA

X. The Horizon Has Arrived

XI. Statolatry and the Endgame 

The Philippine Flood Control Scandal: Systemic Failure and Central Bank Complicity 

What looks like an infrastructure scam is really a mirror of the Philippines’ deeper malaise: politicized finance, central bank accommodation, and a brittle economy propped by debt. 

I. ‘Shocked’ or Complicit? The Nexus of Policy and Corruption 

Media reported that BSP was “shocked” by the scale of corruption. The Philstar quoted the BSP Chief, who also chairs the AMLC: “It was worse than we thought… We knew there was corruption all along, but not on this scale… as much of a shock to the central bank as to the public.” 

“Shocked” at the scale of corruption? Or at their own complicity?

Figure 1

Easy-money ‘trickle-down’ policies didn’t just enable anomalies—they fostered and accommodated them. Banks, under BSP’s watch, have financed the government’s ever-expanding debt-financed deficit spending binge—including flood control projects—through net claims on central government (NCoCG), which hit Php 5.547 trillion last July, the third highest on record. Public debt slipped from July’s record high to Php 17.468 trillion in August. (Figure 1, upper window) 

II. A Financial System in Cartel’s Grip 

Meanwhile, operating like a cartel, bank control of the financial system has surged to a staggering 82.7% of total financial resources/assets, with universal commercial banks alone commanding 77.1% (as of July 2025). (Figure 1, lower chart) 

This mounting concentration is no mere market feature—the scandal exposes the financial system’s structural vulnerability. The scale of transactions, personalities, and institutional fingerprints involved in the scandal was never invisible. It was ignored. 

III. Structural Failure, Not Just Regulatory Lapse; Virtue-Signaling Over Solution 

This isn’t just a regulatory lapse. 

It is structural, systemic, and political—failure implicating not only the heads of finance and monetary agencies, but extends up to political leadership past and present. The iceberg runs deep. 

Worse, the economy’s deepening dependence on deficit spending to prop up the GDP kabuki only enshrines the “gaming” of the system—a choreography sustained by a network of national and local politicians, bureaucrats, financiers, media, and their cronies. 

Corruption scandals of this kind are therefore not confined to infrastructure—it permeates every domain tethered to policy-driven redistribution 

Yet instead of accountability, the BSP hides behind virtue-signaling optics. It flaunts probes and caps withdrawals, likely oblivious to the systemic damage it may inflict on beleaguered banks, stained liquidity, and an already fragile economy. 

The predictable ramifications: lingering uncertainties lead to a potential tightening of credit, and erodes confidence in Philippine assets and the peso. 

Ironically, this impulse response risks amplifying the very imbalances the BSP aims to contain—Wile E. Coyote dynamics in motion. 

Banks attempt to camouflage record NPLs via ‘denominator effects’ from a growth sprint on credit expansion while simultaneously scrambling to mask asset losses via intensifying exposure to Available for Sale Securities (AFS)—a desperate sprint toward the cliff’s edge—as previously discussed. (see reference section for previous discussion) 

IV. BSP Withdrawal Caps as Capital Controls: Six Dangers 

As part of its histrionics to contain the flood-control scandal, the BSP imposed a daily withdrawal cap of Php 500,000. 

First, these sweeping limits target an errant minority while penalizing the wider economy. Payroll financing for firms with dozens of employees, capital expenditures, and cash-intensive investments and many more aspects of commerce all depend on such flows. The economy bears the cost of institutional failure. 

Second, withdrawal caps are a form of capital control—another step in the state’s creeping centralization of the economy. Price controls (MSRP and "20 rice" rollouts), wage controls (minimum wages), and exchange-rate controls (the USDPHP soft peg) are already in place. Capital controls, by nature, bleed into trade restrictions and signal deeper interventionist intent. 

Third, with strains in the banking system worsening, the caps effectively lock in liquidity—an indirect rescue effort for banks at the expense of depositors. This is moral hazard in action: prudence is punished while recklessness is protected. But locking liquidity in stressed institutions risks triggering a velocity collapse, where money exists but refuses to circulate—amplifying systemic fragility. 

Fourth, once the public realizes that siloed money can be unilaterally withheld at will, the credibility of financial inclusion erodes, risking a collapse in confidence. Combined with CMEPA’s assault on savings, these measures push households and firms toward informal channels, further eroding trust in the banking system itself. The behavioral signal is chilling: your money is conditional; your trust is optional. 

Fifth, such public assurance measures expose the banking system’s inherent weakness. Rather than calming markets, they sow doubt over BSP’s capacity to safeguard stability—risking a surge in cash hoarding outside the formal system and spur credit tightening. 

Sixth, international investors may interpret this as mission creep in financial repression—adding pressure on Philippine risk premiums and the peso. Capital flight doesn’t need a headline—it just needs a signal. 

Finally, history warns us: Argentina’s 2001 corralito, Greece in 2015, and Lebanon in 2019 all saw withdrawal limits destroy trust in banks for a generation. The Philippines now flirts with the same danger. 

What begins as optics may end as rupture. 

V. Liquidity Theater 

Efforts to win public approval by “doing something” haven’t stopped at withdrawal caps or capital controls. The BSP has widened its response to include probes into the industry’s legal, administrative, and compliance frameworks—an escalation designed more for optics than systemic repair. 

While the BSP chief admitted that freezing bank funds tied to the flood control scandal could affect liquidity, he downplayed broader risks, claiming: “Our banks are very, very liquid at this point... No bank runs.” (italics added) 

Figure 2

But BSP’s own metrics tell a different story (as of July 2025): (Figure 2, topmost graph) 

-Cash-to-deposit ratio is at all-time lows

-Liquidity-to-deposit ratio has fallen to 2020 levels 

This isn’t stability—it’s strain. 

VI. Systemic Risks on the Horizon 

Beyond tighter liquidity and credit conditions, several systemic risks loom: 

1) Funding Stigma: Banks under investigation face counterparty distrust. Interbank markets may shrink access or charge higher spreads, amplifying liquidity stress. 

2) Reputational Contagion: Even unaffected banks risk depositor anxiety, particularly if they share infrastructure or counterparties with implicated institutions. Concentration risk thus becomes contagion risk. 

3) Depositor Anxiety: The public often interprets targeted probes as systemic signals. Precautionary withdrawals may accelerate, caps notwithstanding. Was BSP anticipating this when it chopped RRR rates last March and doubled deposit insurance? 

4) Regulatory Overreach: To signal credibility, BSP may impose stricter KYC/AML protocols—slowing onboarding, increasing balance sheet friction, and chilling transaction flows. 

5) Market Pricing of Risk: Equity prices, bond spreads, interbank rates, and FX volatility may rise—exposing incumbent fragilities and financial skeletons in the closet. Philippine assets have been the worst performers per BBG. (Figure 2, middle image) 

6) Earnings Pressure and Capital Hit: Sanctions, fines, and reputational damage translate to earnings erosion and capital buffer depletion—weakening the very liquidity BSP claims is “ample.” 

7) AML Fallout: The probe exposes systemic AML blind spots, risking FATF graylisting. Compliance costs may rise, deterring foreign capital. This episode reveals how the statistical criteria behind AMLA and credit ratings are fundamentally flawed. 

8) Political Pressure: The scandal’s reach into lawmakers and officials may trigger clampdowns on regulators, budget delays, and a slowdown in infrastructure spending. 

VII. Political Survival via Institutional Sacrifice; The Kabuki Commission 

One thing is clear: Diversionary policies—from the war on drugs to POGO crackdowns to nationalism via territorial disputes—have boomeranged. Now, the political war is being waged on governing institutions themselves. 

The BSP’s trifecta—capital controls, signaling channels, and probes—is part of a tactical framework to defend the administration’s survival. It sanitizes executive involvement while letting the hammer fall on a few “fall guys.” This is textbook social democratic conflict resolution: high-profile investigations and figurehead resignations to appease public clamor. 

Case in point: the Independent Commission for Infrastructure (ICI), reportedly funded by the Office of the President. How “independent” can it be if the OP bankrolls and decides on its output? 

As I noted on X: (Figure 2, lowest picture)

“That’s like asking the bartender to audit his own till. This ‘commission’ smells more like kabuki.” 

After a week, an ICI member linked to the scandal’s villain resigned. 

VIII. The Political Playbook: Delay, Distract, Dissolve 

Authorities hope for three things:

-That time will dull public anger

-That the probe’s outcome satisfies public appetite

-That new controversies bury the scandal 

But history warns us: corruption follows a Whac-a-Mole dynamic—until it hits a tipping point. 

IX. Historical Parallels: When Economics Ignite Revolutions 

Two EDSA uprisings were preceded by financial-economic upheavals:

1983 Philippine debt crisis → 1986 EDSA I

1997 Asian crisis → 2000 EDSA II 

The lesson is stark: Economic distress breeds political crisis. Or vice versa. 

X. The Strawman of Fiscal Stability and Revenue Realities 

The fiscal health of the Philippine government has been splattered with piecemeal evidence of the flood control scandal’s impact on the political economy. 

Authorities may headline that “Tax Revenues Sustain Growth; Budget Deficit Well-Managed and On Track with Full-Year Target”—but this is a strawman, built on selective perception masking structural deterioration. 

In reality, August 2025 revenues fell -8.8%. The Bureau of Internal Revenue’s (BIR) growth slowed to 5.04%, barely above July’s 4.8%, and far below 11.5% in August 2024. Bureau of Customs (BoC) collections slipped from +6% in July to -1.4% in August, versus +4.7% a year ago. Non-tax revenues collapsed -67.8%, deepening from July’s -9.7%, in stark contrast to the +281.6% surge a year earlier.

Figure 3

For January–August, revenue growth has decelerated sharply from 15.9% in 2024 to just 3.1% in 2025. BIR collections slowed to 11.44% (from 12.6%) and BoC to 1.14% (from 5.67%). Non-tax revenues plunged -31.41%, against +58.9% a year earlier. (Figure 3, topmost diagram)

XI. Expenditure Retrenchment and the Infrastructure Dependency Trap 

Meanwhile, August expenditures fell -0.74% YoY, with National Government disbursement contracting 11.8% for the second straight month. It shrank by 11.4% in July. 

Eight-month expenditures slowed from 11.32% in 2024 to 7.15% in 2025, driven by a sharp decline in NG spending from 10.6% to 3.98%. (Figure 3, middle and lowest graphs) 

Infrastructure spending dropped 25% in July, per BusinessWorld. The deeper August slump reflects political pressure restraining disbursements—pulling down the eight-month deficit. 

Though nominal revenues and expenditures hit record highs, the 2025 eight-month deficit of Php 784 billion is the second widest since the pandemic-era Php 837.25 billion in 2021 Ironically, today’s deficit remains at pandemic-recession levels even without a recession—yet. 

As we noted back in early September: 

"The unfolding DPWH scandal threatens more than reputational damage—it risks triggering a contractionary spiral that could expose the fragility of the Philippine top-down heavy economic development model.  

"With Php 1.033 trillion allotted to DPWH alone (16.3% of the 2025 budget)—which was lowered to Php 900 billion (14.2% of total budget)—and Php 1.507 trillion for infrastructure overall (23.8% and estimated 5.2% of the GDP), any slowdown in disbursements could reverberate across sectors.  

"Many large firms are structurally tied to public projects, and the economy’s current momentum leans heavily on credit-fueled activity rather than organic productivity.  

"Curtailing infrastructure outlays, even temporarily, risks puncturing GDP optics and exposing the private sector’s underlying weakness. " 

And it’s not just infrastructure. Political pressure has spread to cash aid distribution. ABS-CBN reported that DSWD is preparing rules “to insulate social protection programs from political influence.” Good luck with that. 

For now, rising political pressure points to a drastic slowdown in spending. 

XII. The Keynesian Paradox, Liquidity Trap and Deposit Flight

Figure 4

Remember: the government’s share of national GDP hit an all-time high of 16.7% in 1H 2025. (Figure 4, upper chart) 

This excludes government construction GDP and private sector participation in political projects (PPPs, suppliers, contractors etc.). Yet instead of a Keynesian multiplier, higher government spending has yielded slower GDP—thanks to malinvestments from the crowding out dynamic. 

The BSP is already floating further policy easing this October. BusinessWorld quotes the BSP Chief: “If we see [economic] output slowing down because of the lack of demand, then we would step in, easing policy rates [to] strengthen demand.”

The irony is stark. What can rate cuts achieve in “spurring demand” when the BSP is simultaneously probing banks and imposing withdrawal caps?

And more: what can they do when authorities themselves admit that CMEPA triggered a “dramatic” 95-percent drop in long-term deposits, or when households are hoarding liquidity in response to new tax rules—feeding banks’ liquidity trap?

XIII. PSE’s Sleight of Hand on CMEPA

Meanwhile, the PSE pulled a rabbit from the hat, claiming CMEPA attracted foreign investors from July to September 23. As I posted on X.com: The PSE cherry-picks its data. PSEi is significantly down, volume is sliding. The foreign flows came from a one-day, huge cross (negotiated) sale from Metrobank (PSE:MBT) and/or RL Commercial (PSE: RCR)—untruth does not a bull market make.” (Figure 4, lower picture)

What this really signals is that banks will scale up borrowing from the public to patch widening balance sheet imbalances—our Wile E. Coyote moment (see reference to our previous discussion). Banks, not the public, stand to benefit.

IX. The Debt Spiral Tightens

The bigger issue behind policy easing is government financing. 

As we’ve repeatedly said, the recent slowdown in debt servicing may stem from: “Scheduling choices or prepayments in 2024—or political aversion to public backlash—may explain the recent lull in debt servicing. But the record and growing deficit ensures borrowing and servicing will keep rising.” (see reference)

Figure 5

August 2025 proved the point: Php 601.6 billion in amortization pushed eight-month debt service to Php 1.54 trillion—just shy of last year’s Php 1.55 trillion, and already near the full-year 2023 total (Php 1.572 trillion). (Figure 5, topmost and middle graphs)

Foreign debt servicing’s share rose from 19.86% to 22.3%. 

Eight-month interest payments hit a record Php 584 billion, raising their share of expenditures from 13.8% to 14.8%—the highest since 2009.  (Figure 5, lowest chart) 

All this confirms: BSP’s rate cuts serve the government, banks, and politically connected elite—not the public. (see reference) 

X. The Horizon Has Arrived 

As we noted last August: (See reference) 

-More debt → more servicing → less for everything else

-Crowding out hits both public and private spending

-Revenue gains won’t keep up with servicing

-Inflation and peso depreciation risks climb

-Higher taxes are on the horizon 

That horizon is here. Higher debt, more servicing, more crowding out, faltering revenue gains, and higher taxes in motion (new digital taxes, DOH’s push for sin tax expansion…). 

Inflation and peso depreciation are coming. 

XI. Statolatry and the Endgame 

The paradox is sobering: Reduced public spending may slow diversion from wealth consumption and unproductive activities to a gradual build-up in savings—offering a brief window for capital formation. 

The bad news? Most still believe political angels exist, and that governance can only be solved through statism—a cult which the great economist Ludwig von Mises called statolatry. 

For the historic imbalances this ideology has built, the endgame can only be crisis. 

____

References 

Banks and Fiscal Issues 

Prudent Investor Newsletters, Minsky's Fragility Cycle Meets Wile E. Coyote: The Philippine Banking System’s Velocity Trap, Substack, September 14, 2025 

Prudent Investor Newsletters, When Free Lunch Politics Meets Fiscal Reality: Lessons from the DPWH Flood Control Scandal, Substack, September 7, 2025 

Prudent Investor Newsletters, June 2025 Deficit: A Countdown to Fiscal Shock, Substack, Substack, August 3, 2025 

Prudent Investor Newsletters, The Philippines’ May and 5-Month 2025 Budget Deficit: Can Political Signaling Mask a Looming Fiscal Shock?, Substack, July 7, 2025 

Prudent Investor Newsletters, Goldilocks Meets the Three Bad Bears: BSP’s Sixth Rate Cut and the Late-Cycle Reckoning, Substack, August 31, 2025 

CMEPA 

Prudent Investor Newsletters, The CMEPA Delusion: How Fallacious Arguments Conceal the Risk of Systemic Blowback July 27, 2025 (substack) 

Prudent Investor Newsletters, The Seen, the Unseen, and the Taxed: CMEPA as Financial Repression by Design July 20,2025 (substack)  

Ludwig von Mises, Bureaucracy, NEW HAVEN YALE UNIVERSITY PRESS 1944. p.74  Mises.org

 

 

The 5.5% Q2 GDP Mirage: How Debt-Fueled Deficit Spending Masks a Slowing Economy

National product statistics have been used widely in recent years as a reflection of the total product of society and even to indicate the state of “economic welfare.” These statistics cannot be used to frame or test economic theory, for one thing because they are an inchoate mixture of grossness and netness and because no objectively measurable “price level” exists that can be used as an accurate “deflator” to obtain statistics of some form of aggregate physical output. National product statistics, however, may be useful to the economic historian in describing or analyzing an historical period. Even so, they are highly misleading as currently used—Murray N. Rothbard 

 

In this issue: A brief but blistering breakdown of the 5.5% GDP mirage. 

The 5.5% Q2 GDP Mirage: How Debt-Fueled Deficit Spending Masks a Slowing Economy

I. Q2 GDP: A Mirage of Momentum

II. The Secondary Trendline: Pandemic’s Lingering Scar; GDP: A Flawed Lens, Still Worshipped

III. Economic Wet Dreams, Statistical Kabuki and Confirmation Bias

IV. The GDP Illusion, Poverty Amid Growth: Cui Bono?

V. Policy Theater, the Real Economy and The Credit–Consumption Black Hole

VI. Jobs Boom, GDP Drag

VII. Policy Vaudeville: July .9% Inflation, MSRP and the Php 20 Rice Rollout

VIII. Core vs Headline CPI: A Divergence Worth Watching

IX. Deflator Manipulation, GDP Inflation

X. Inflation-GDP Forecasting as Folklore

XI. The Official Narrative: A Celebration of Minor Gains

XII. The Real Driver: Government Spending, Not Households

XIII. The Consumer Illusion: Retail as a Misleading Proxy

XIV. Expenditure Breakdown: Only Government Spending Beat the Headline

XV. Inconvenient Truth: The Rise of Big Government—Crowding Out in Action, The Establishment’s Blind Spots and Tunnel Vision

XVI. More Inconvenient Truths: Debt-Fueled GDP—A Statistical Shell Game

XVII. The Debt-Deficit Trap: No Way Out Without Pain—Sugarcoating Future Pain

XVIII. Tail-End Sectors Surge: Agriculture and Real Estate Rebound

XIX. The Policy Sweet Spot—and Its Expiry Date: Diminishing Returns of Stimulus

XX. Conclusion: Narrative Engineering and the Keynesian Free Lunch Trap

XXI. Post Script: The Market’s Quiet Rebuttal: Flattening Curve Exposes GDP Mirage 

The 5.5% Q2 GDP Mirage: How Debt-Fueled Deficit Spending Masks a Slowing Economy 

Beneath the headline print lies a fragile economy propped up by CPI suppression, statistical distortion, and unsustainable public outlays.

I. Q2 GDP: A Mirage of Momentum 

The Philippines clocked in a Q2 GDP of 5.5% — higher than Q1 2025’s 5.4% but lower than Q2 2024’s 6.5%. 

For the first half, GDP posted a 5.4% expansion, above the 5.2% of the second half of 2024 but still below the 6.2% seen in the first half of 2024.

Figure 1

While this was largely in line with consensus expectations, what is rarely mentioned is that both nominal and real GDP remain locked to a weaker post-2020 secondary trendline — a legacy of the pandemic recession. (Figure 1, topmost graph) 

II. The Secondary Trendline: Pandemic’s Lingering Scar; GDP: A Flawed Lens, Still Worshipped 

Contra the establishment narrative, this lower secondary trend illustrates a slowing pace of increases—a theme we’ve repeatedly flagged. 

GDP now appears to be testing its own support level, underscoring the fragility of this fledgling trendline and the risk of a downside break. 

Though we’re not fans of GDP as a concept, we analyze it within the dominant lens—because everyone else treats it as gospel. 

But let’s be clear: GDP is a base effect—a percentage change from comparative output or expenditure figures from the same period a year ago. 

III. Economic Wet Dreams, Statistical Kabuki and Confirmation Bias 

When pundits claim GDP will breach 6% or that the Philippines is nearing “upper middle class” status, they’re implying that aside from seasonal Q4 strength, the rest of the year will recapture the original trendline and stay there. What a wet dream! 

These forecasts come from either practitioners afflicted by the Dunning-Kruger syndrome or sheer propagandists. 

The PSA’s national accounts data offer contradictory insights. But this isn’t just about statistics—it’s about confirmation bias. The public is told what it wants to hear. 

IV. The GDP Illusion, Poverty Amid Growth: Cui Bono? 

GDP is a quantitative estimate—built on assumptions, inputs, and econometric calculations. It hopes to objectively capture facts on the ground, but in aggregate, it overlooks individual preferences, distributional effects, financing mechanisms, and policy responses. 

Worse, its components (from rice to cars to Netflix) are averaged in ways that can distort reality. Aside, input or computational errors, or even manipulation, are always possible. 

Yes, GDP may be 5.5%, but SWS’s June self-rated poverty survey still shows 49% of Filipino families identifying as poor, with 10% on the borderline. While this is sharply down from December 2024’s 63%, the numbers remain considerable. (Figure 1, middle image) 

So, who benefits from the recent inflation decline that distilled into a 5.5% GDP? 

At a glance, the 41%—but even within this group, gains are uneven. Or, even within the 41% who are “non-poor,” gains are concentrated among larger winners while most see only modest improvements (see conclusion) 

V. Policy Theater, the Real Economy and The Credit–Consumption Black Hole 

The real economy doesn’t operate in a vacuum. It is a product of interactions shaped by both incumbent and anticipated socio-political and economic policies. 

The BSP began its easing cycle in 2H 2024, delivering four rate cuts (the fifth in June), two reserve requirement ratio cuts, doubled deposit insurance, a soft peg defense of the peso, and a new property benchmark that eviscerated real estate deflation. 

Theoretically, the economy ought to be functioning within a policy ‘sweet spot’. 

Despite blistering nominal growth and record-high universal-commercial bank credit—driven by consumer lending—real GDP barely budged. (Figure 1, lowest pane) 

Interest rates were hardly a constraint. Bank lending surged even during the 2022–23 rate hikes. Yet the policy transmission mechanism seems blunted: credit expansion hasn’t translated into consumer spending, rising prices or real GDP growth. 

Banking sector balance sheets suggest a black hole between credit and the economy—likely a repercussion of overleveraging or mounting balance sheet imbalances. 

More financial easing won’t fix this bottleneck. It’ll worsen it. 

VI. Jobs Boom, GDP Drag

Figure 2

We’re also treated to the spectacle of near-record employment. In June, the employed population reached its second-highest level since December 2023, driving the employment rate to 96.3% and lifting Q2’s average to 96.11%. 

That should be good news. But is it? If so, why has headline GDP moved in the opposite direction? (Figure 2, topmost chart) 

This labor boom coincided with over 25% credit card growth—normally a recipe for inflation (too much money chasing too few goods). (Figure 2, middle visual)

Instead, CPI fell, averaging just 1.4% in Q2. Near-record employment met falling prices, with barely a whisper from the consensus about softening demand. (Figure 2, lowest diagram)

VII. Policy Vaudeville: July .9% Inflation, MSRP and the Php 20 Rice Rollout

Authorities reported July inflation at 0.9%—approaching 2019 lows. But this is statistical kabuki, driven by price controls and weak demand.

Figure 3

Rice prices, partly due to imports, were already falling before January’s MSRP. The Php 20 rice rollout only deepened the deflation. (Figure 3, topmost diagram)

July saw rice prices drop 15.9%. Despite earlier MSRP, meat prices remained elevated—9.1% in June, 8.8% in July.

Because rice carries an 8.87% weight in the CPI basket, its deflation dragged down Food CPI (34.78% weight), driving July’s headline CPI to 2019 lows.

This divergence reveals the optics. MSRP failed on pork, so it was quietly lifted. But for rice, it was spun as policy success—piggybacking on slowing demand, punctuated by the Php 20 rollout even though it simply reinforced a downtrend already in motion.

VIII. Core vs Headline CPI: A Divergence Worth Watching

The growing gap between core and headline CPI is telling. The negative spread is now the widest since June 2022. Historically, persistent negative spreads have signaled inflection points—2015–16, 2019–2020, 2023. (Figure 3, middle window)

Moreover, MoM changes in the non-food and energy core CPI suggest consolidation and its potential terminal phase. An impending breakout looms—implying rising prices across a broader range of goods. (Figure 3, lowest graph)

IX. Deflator Manipulation, GDP Inflation 

Here’s the kicker: statistical histrionics are inflating GDP by repressing the deflator.

Real GDP is not a raw measure of economic output—it’s a ratio: nominal GDP divided by the GDP deflator. That deflator reflects price levels across the economy. Push the deflator down, and—voilà—real GDP pops up, even if nominal growth hasn’t changed. 

Q2’s 5.5% real GDP print looks better partly because the deflator was suppressed by statistical and policy factors: rice imports, price controls, Php 20 rice rollouts or targeted subsidies, and peso defense all helped drag reported inflation to multi-year lows. Rice alone, with an 8.87% CPI weight, deflated nearly 16% in July, pulling down the broader food CPI and, by extension, the GDP deflator. 

If the deflator had stayed closer to its Q1 level, Q2 real GDP would likely have landed closer to the 4.5–4.8% range—well below the official figure. This isn’t economic magic; it’s arithmetic. The “growth” came not from a sudden burst in output, but from lowering the measuring stick. 

Q2 GDP is another "benchmark-ism" in action. 

X. Inflation-GDP Forecasting as Folklore 

Amused by media’s enthrallment with government inflation forecasts, we noted at X.com: "Inflation forecasting is the game of ‘pin the tail on the donkey’ — a guess on a statistical guess, dressed up as science. The mainstream reinforces an Overton-window narrative that serves more as diversion than insight" 

The real economy—fragile, bifurcated, and policy-distorted—remains unseen.

XI. The Official Narrative: A Celebration of Minor Gains 

The establishment line, echoed by Reuters and Philstar, goes something like this: 

"Slowing inflation also helped support household consumption, which rose 5.5% year-on-year in the second quarter, the fastest pace since the first quarter of 2023" … 

"Faster farm output and strong consumer spending helped the Philippine economy expand by 5.5 percent in the second quarter"

Figure 4

But beneath the headlines lies a more sobering truth: a one-basis-point rise in household spending growth has been heralded as a “critical factor” behind the GDP expansion. 

While the statement is factually correct, it masks the reality: household spending as a share of GDP has been rangebound since 2023, showing no real breakout in momentum. 

XII. The Real Driver: Government Spending, Not Households 

The true engine of Q2 GDP was government spending, which rose 8.7%, down from 18.7% in Q1 but still dominant. (Figure 4, topmost window) 

Over the past five quarters, government spending has averaged 10.7%, dwarfing household consumption’s 5.1%.  

This imbalance exposes the fragility of the consumer-led growth narrative. When per capita metrics are used, the illusion fades further: Real household per capita GDP was just 4.5% in Q2, barely above Q1’s 4.4%, and well below Q1 2023’s 5.5%.

This per capita trend has been flatlining at secondary trendline support, locked in an L-shaped pattern—inertia, not resurgence—and still drifting beneath its pre-pandemic exponential trend.  The per capita household consumption “L-shape” shows spending per person collapsing during the pandemic and never meaningfully recovering — a flatline that belies the GDP growth narrative. (Figure 4, middle graph)

XIII. The Consumer Illusion: Retail as a Misleading Proxy

Despite the BSP’s promotion of property prices as a proxy for consumer health—and the Overton Window’s deafening hallelujahs—SM Prime’s Q2 results reveal persistent consumer strain: (Figure 4, lowest chart) 

• Rent revenues rose only 6.3%, the weakest since the pandemic recession in Q1 2021.
• Property sales stagnated, up just 0.2% despite new malls in 2024 and 2025 

So much for the “strong consumer” thesis. 

XIV. Expenditure Breakdown: Only Government Spending Beat the Headline 

In the PSA’s real GDP expenditure table, only government spending exceeded the headline:

• Household: 5.5%
• Gross capital formation: 0.6%
• Exports: 4.4%
• Imports: 2.9%
• Government: 8.7% 

Notably, government spending excludes public construction and private allocations to public projects (e.g., PPPs). Due to the May mid-term elections, real public construction GDP collapsed by 8.2%. 

XV. Inconvenient Truth: The Rise of Big Government—Crowding Out in Action, The Establishment’s Blind Spots and Tunnel Vision

Figure 5

The first half of 2025 exposes a structural shift the mainstream won’t touch:  Government spending’s share of GDP has surged to an all-time high! 

Meanwhile, consumer driven GDP continues its long descent—down since 2001. (Figure 5, topmost diagram) 

As the public sector’s footprint swells, the private sector’s relative role contracts. This isn’t theoretical crowding out. It’s empirical. It’s unfolding in real time. (Figure 5, middle image) 

Importantly, this is not a conspiracy theory—these are government’s own data. Yet the establishment’s analysts and bank economists appear blind to it. 

Proof? 

Banks are shifting focus toward consumer lending, even as the consumer share of GDP trends lower. 

The “build-and-they-will-come” crowd remains locked in a form of tunnel vision, steadfastly clinging to a decaying trend. 

XVI. More Inconvenient Truths: Debt-Fueled GDP—A Statistical Shell Game 

Government has no wealth of its own. It extracts from the productive sector—through taxes, borrowing (future taxes), and inflation. 

As Big Government expands, so does public debt — now at Php 17.3 trillion as of June! 

The June debt increase annualizes to Php 1.784 trillion — eerily close to the Php 1.954 trillion NGDP gain over the past four quarters (Q3 2024–Q2 2025). (Figure 5, lowest visual)

Figure 6 

That’s a mere Php 170 billion gap. Translation: debt accounts for 91.3% of NGDP’s statistical value-added. 

The 91.3% “debt as share of NGDP increase” means almost all of the year-on-year nominal GDP expansion came from government borrowing, not private sector growth — in other words, strip out the deficit spending, and the economy’s headline size barely moved. 

Yet this spread has collapsed to its lowest level since the pandemic recession. (Figure 6, upper pane) 

This isn’t growth. It’s leverage masquerading as output — GDP propped up almost entirely by deficit spending! 

This also reinforces the government’s drift toward centralization—where state expansion becomes the default engine of the economy. 

XVII. The Debt-Deficit Trap: No Way Out Without Pain—Sugarcoating Future Pain 

It’s unrealistic for the administration to claim it can “slowly bring down” debt while GDP remains tethered to deficit spending. 

Debt-to-GDP ratios are used to soothe public concern—but the same debt is inflating GDP through government outlays. It’s a circular metric: the numerator props up the denominator. 

According to the Bureau of Treasury, Debt-to-GDP hit 63.1% in Q2 2025—highest since 2005! 

Ironically, authorities quietly raised the debt-to-GDP threshold from 60% to 70% in August—an implicit admission that the old ceiling is no longer defensible. 

This is a borrow-now, pay-later model. Short-term optics are prioritized, while future GDP is sacrificed. 

Even the PSA’s long-term trendline reflects this drag—confirming the trajectory of diminishing returns. 

And we haven’t even touched banking debt expansion, which should have supported both government and elite private sector financing. Instead, it’s compounding systemic fragility. 

We’re no fans of government statistics—but even their own numbers tell the story. Cherry-picking to sugarcoat the truth isn’t analysis. It’s deception. And it won’t hide the pain of massive malinvestments. 

XVIII. Tail-End Sectors Surge: Agriculture and Real Estate Rebound 

From the industry side, Q2 saw surprising strength from GDP’s tailenders: 

Agriculture GDP spiked 7%, the highest since Q2 2011’s 8.3%. Volatile by nature, such spikes often precede plunges. 

Real estate GDP nearly doubled from Q1’s 3.7% to 6.1%, though still below Q2 2024’s 7.7%. (Figure 6, lower graph) 

Yet initial reports of listed property developers tell a different story: 

-Aggregate real estate sales: +4.1% (Megaworld +10.5%, Filinvest -4.96%, SMPH +0.02%) 

-Total revenues: +5.23% (Megaworld +9.6%, Filinvest -1.2%, SMPH +3.83%)

These figures lag behind nominal GDP’s 7.9%, suggesting statistical embellishment aligned with BSP’s agenda. 

Benchmark-ism strikes again!  

XIX. The Policy Sweet Spot—and Its Expiry Date: Diminishing Returns of Stimulus 

Technically, Q2 and 1H mark the ‘sweet spot’ of policy stimulus—BSP’s easy money paired with fiscal expansion. But artificial boosts yield diminishing returns. 

A 5.5% print reveals fragility more than resilience. 

Once again, the entrenched reliance on debt-financed deficit spending inflates GDP at the expense of future stability—while compounding systemic risk.  

XX. Conclusion: Narrative Engineering and the Keynesian Free Lunch Trap 

GDP has been sculpted to serve the establishment’s preferred storyline: 

• CPI suppression to inflate real GDP
• Overstated gains in agriculture and real estate
• Escalating reliance on deficit spending 

Repressing CPI to pad GDP isn’t stewardship—it’s pantomine. A calculated communication strategy designed to preserve public confidence through statistical theater. 

Within this top-down, social-democratic Keynesian spending framework, the objective is unmistakable: Cheap access to household savings to bankroll political vanity projects. These are the hallmarks of free lunch politics. 

The illusion of growth props up the illusion of competence. And both are running on borrowed time. 

Yet, who benefits from this GDP? 

Not the average household. Not the productive base. As The Inquirer.net reports: "The combined wealth of the country’s 50 richest rose by more than 6 percent to $86 billion this year from $80.8 billion in 2024, as the economy got some lift from robust domestic demand and higher infrastructure investments, according to Forbes magazine." 

GDP growth has become a redistribution mechanism—upward. A scoreboard for elite extraction, not shared prosperity. 

Without restraint on free lunch politics, the Philippines is barreling toward a debt crisis. 

XXI. Post Script: The Market’s Quiet Rebuttal: Flattening Curve Exposes GDP Mirage 

Despite headline growth figures and establishment commentary echoing official optimism, institutional traders—both local and foreign—remain unconvinced by the Overton Window of managed optimism rhetoric. 

The market’s posture suggests skepticism toward the government’s narrative of resilience.

Figure 7 

Following a Q2 steepening (end-June Q2 vs. end-March Q1), the Philippine Treasury curve has flattened in August (mid-Q3), though it remains steep in absolute terms. While the curve remains steep overall, the recent shift reveals important nuances: 

Short end (T-bills): August T-bill yields are marginally lower than June Q2 but still above March Q1 levels. 

Belly (3–5 years): Rates have been largely static or inert, showing no strong conviction on medium-term growth or market indecision 

Long end (10 years): Yields have fallen sharply since March and June, suggesting softer growth expectations or rising demand for duration. 

Ultra-long (20–25 years): Rates remain elevated and sticky, reflecting structural fiscal and inflation concerns. 

After July’s 0.9% CPI print, the peso staged a brief rally, yet the USDPHP remains above its March lows. Meanwhile, 3-month T-bill rates softened slightly post-CPI, hinting at the BSP’s intent to maintain its easing stance. 

Q3’s bearish flattening underscores rising risks of economic slowdown amid stubborn inflation or stagflation. 

The divergence between market pricing and statistical growth exposes the mirage of Q2 GDP—more optical than operational, more narrative than organic.