Behind the Retail Surge: Dissecting the PSE’s 2024 Investor Profile Amid Heightened Volatility and Economic Strain

  

The world has never been so awash in speculative finance, ensuring aberrant market behavior. Never has the global leveraged speculating community been as colossal and powerful. Egregious Treasury “basis trade” leveraging drives unprecedented overall hedge fund leverage. Household (loving dip buying) market participation is unparalleled, with the proliferation of online accounts, options trading, and herd-like speculation creating extraordinary market-moving power—Doug Noland 

In this issue

Behind the Retail Surge: Dissecting the PSE’s 2024 Investor Profile Amid Heightened Volatility and Economic Strain

I. Introduction: A Record-Breaking Year for Retail Accounts

II. The Retail Activity Paradox; The Real Drivers Behind the Surge: A PSEi 30 Bull Market?

III. Institutional Dominance, Trading Concentration and Market Manipulation

IV. Concentration Risks: National Team, Other Financial Corporations and Total Financial Resources

V. 2024’s Economic Operating Conditions, Financial Distress and Unintended Consequences

VI. The Savings Illusion and the Generational Shifts: Herding Among Youth, Decline Among Seniors

VII. The Digital Divide in Brokerage: Traditional Brokers Under Pressure

VIII. Conclusion: A Mirage of Growth 

Behind the Retail Surge: Dissecting the PSE’s 2024 Investor Profile Amid Heightened Volatility and Economic Strain 

What’s really driving the surge in Philippine retail investors? A closer look reveals economic desperation, distortion, and deepening divides beneath the surface of stock market optimism 

I. Introduction: A Record-Breaking Year for Retail Accounts 

The PSE reported on June 9, 2025: "The number of stock market accounts in the Philippine Stock Exchange reached 2.86 million in 2024, up by 50.1 percent from 1.91 million in 2023. This was fueled by a 62.0 percent surge in online accounts to 2.47 million from 1.53 million. “This 50 percent jump in number of accounts is the highest we have recorded since we started tracking the investor count and profile in 2008. This substantial growth was made possible by the enabling of digital platforms to connect to PSE”s trading engine, thereby facilitating the trading by investors in the market. PSE is committed to being true to its advocacy of promoting financial inclusion,” said PSE President and CEO Ramon S. Monzon. “More than the numbers, what is important is that retail investors are equipped with investment know-how to avoid investing pitfalls. We address this need for investor education through our various investing literacy initiatives. We also actively work with trading participants and government and private entities to spread the word about personal finance and stock market investing,” Mr. Monzon added." (bold added)

Figure 1

The PSE seems exhilarated by this unprecedented surge. Yet beneath the celebratory tone lies a paradox: they appear unsure why this spike occurred. Their attribution to the "enabling of digital platforms" seems insufficient, especially since such infrastructure has been in place since 2013. (Figure 1, topmost graph) 

This inability to explain the surge becomes more apparent when considering their bewilderment over the depressed number of active accounts. 

As the PSE acknowledged: "While growth in retail accounts has been remarkable, the real challenge is getting retail investors to participate more actively in our market as they only contribute 16 percent to total value turnover. We are optimistic that the upcoming reduction in stock transaction tax (STT) to 0.1 percent from 0.6 percent, along with the various investor education programs and upcoming pipeline of products of the Exchange, will encourage greater investor activity for the remainder of 2025," Mr. Monzon noted. (bold added) 

The low contribution of retail investors to market turnover—underscores the PSE’s challenge: Understanding the essence and the development of the capital markets in line with economic freedom, rather than using it as a covert political redistribution, which drives malinvestments and inequality.

II. The Retail Activity Paradox; The Real Drivers Behind the Surge: A PSEi 30 Bull Market?

Three critical questions emerge from this phenomenon: 

One, is the PSE experiencing a bull market, fueling frenzied retail participation? 

Two, could the torrent of enrollment reflect symptoms of economic desperation—people seeking to plug income gaps amid stagnant living standards?  Or, is this a case of instant gratification through asset speculation? 

Three, has a sudden boom in savings driven retail investors into stocks? 

"Is the PSE experiencing a bull market driving frenzied retail participation?" 

With the PSEi 30 returning just 1.22% in 2024, the surge in new participants seems disconnected from its performance. (Figure 1, middle window) 

However, breaking down this performance by quarters reveals important insights. 

While Q1 2024's 7.03% increase may have been a contributing factor, Q3's phenomenal 13.4% returns likely lured the bulk of these newcomers into stocks. (Figure 1, lowest chart) 

Of course, they were also likely swayed by the constant "propagandizing" or the bombardment by media and establishment "talking heads" of a "return of a bull market!" 

Even more, one critical aspect highlighted by the PSE deserves attention: retail investors "contribute 16 percent to total value turnover." This means retail trades represent a significant minority in the PSE’s turnover.

Figure 2

According to PSE infographics, retail active accounts represented 23.1% of total accounts and 24.5% of online accounts, totaling 660,714 retail accounts. The massive influx of new participants helped boost the active account ratio from an all-time low of 17.5% in 2023 to 23.1% in 2024. (Figure 2, topmost and middle images) 

Our underlying assumption is that the data reflects the ratio of active to total accounts, rather than the proportion of active accounts relative to total market turnover. 

As further proof of the PSE's lackadaisical activities, gross volume turnover rose by just 1.37% in 2024—the second lowest peso level since at least 2014. (Figure 2, lowest diagram) 

III. Institutional Dominance, Trading Concentration and Market Manipulation

Figure 3 

This raises a striking question about the remaining 84% share of total turnover. The answer lies with institutional investors—both local and foreign. Foreign money accounted for 48.8% of gross turnover, with foreigners selling local equities worth Php 25.253 billion in 2024. (Figure 3, topmost chart) 

Foreign investors represented 36% of active online activities, though the distribution between retail and institutional foreign activities remains unspecified. 

The data reveals a staggering concentration of trading activities in 2024:

• The top 10 brokers accounted for a daily average of 58.9% of mainboard turnover. (Figure 3, middle window)
• The top 10 and 20 most actively traded issues averaged 64% and 83% respectively, and
• The Sy Group (among the top 3 of the five biggest market capitalizations) averaged 21.19% of market activity.

The scale of concentrated activities also elucidates evidence of "coordinated price actions," such as the post-lunch recess "afternoon delight" and the 5-minute pre-closing "float pumps-and-dumps"—as demonstrated by some of the major activities in 2025. (Figure 3, lowest charts) 

Basically, the PSEi 30 has been "propped up" or "cushioned" by local institutional investors.

Figure 4

As a result, the share of the top five free-float heavyweights reached its highest level at 52% in December and averaged 50.3% in 2024—meaning their free-float share accounted for more than half of the index. SM, ICT, BDO, BPI, and SMPH delivered returns of 3.01%, 56.04%, 10.34%, 17.54%, and -23.6%, respectively, resulting in an average return of 12.76% in 2024—a clear sign of divergence from the rest of the PSEi 30. (Figure 4, upper pane) 

Furthermore, given that the aggregate advance-decline spread was generally negative, albeit better than in 2023, this shows why novice "traders" morphed into "investors." Or, the negative spread signifies that losses dominated the overall performance of listed firms at the PSE—a continuing trend since 2013. (Figure 4, lower visual) 

With the PSEi returning 1.22% in 2024, the asymmetric performance reinforces the massive divergence between the PSEi 30 and the broader PSE universe. 

Put simply, the synchronized and mostly coordinated pumps and dumps of the top five—or even the top ten—have fundamentally kept the PSEi 30 from a free fall. 

IV. Concentration Risks: National Team, Other Financial Corporations and Total Financial Resources

Figure 5

It is no coincidence that the ebbs and flows of the domestic private sector claims of Other Financial Corporations (OFCs) have dovetailed with the PSEi 30 level. (Figure 5, upper graph) 

In short, OFCs appear to have played a very substantial role in propping up the PSEi 30. 

Could they be part of the local version of the "national team" aimed at supporting price levels of the PSEi 30? 

It is also not a coincidence that banks have been deepening their hold on the nation’s total financial resources (assets), a trend that further reveals the depth of systemic concentration risks. 

Although the growth of Total Financial Resources has been slowing from its July 2024 peak of 11.23% to 5.06% in April 2025, the share of Philippine banks and universal banks in the total has been drifting at all-time highs of 82.64% and 77.08%, respectively. (Figure 5, middle diagram) 

Could all these actions have been designed to keep asset prices or "collateral values" afloat to stave off risks of credit deflation, which would imperil the banking system? 

V. 2024’s Economic Operating Conditions, Financial Distress and Unintended Consequences 

"Could the torrent of enrollment reflect symptoms of economic desperation?" 

Let us also not forget the operating conditions in 2024. The BSP initiated its easing cycle in the second half of 2024 (rate cuts and RRR cut), while public spending rose to a record high. 

The unintended consequences of the PSEi 30's 'Potemkin village' effect extend beyond price distortions—overvaluing capital goods and fostering spillover effects through excess capacity and malinvestments. More importantly, it redistributes wealth through zero-sum transactions, where institutions sell holdings at elevated prices while naive retail participants are 'left holding the bag.' 

Once again, downside volatility has 'emasculated' these neophytes, transforming their initial short-term trading positions into long-term or 'buy-and-hold investments.' More precisely, their failed attempts to generate short-term income resulted in a 'trading freeze.' 

That is to say, many novice traders were drawn in by the pursuit of short-term yield—whether to compensate for insufficient income, recover lost purchasing power, or escape excessive debt—by engaging in stocks, a true 'Hail Mary Pass!' 

It is no surprise that this period aligned with milestone highs in sentiment-driven surveys on self-rated poverty and hunger incidences. 

In essence, many newcomers likely perceived the PSE not as a structured investment market but as a high-stakes gamble—a 'lottery ticket' or a 'casino' offering a chance to escape financial hardship. 

VI. The Savings Illusion and the Generational Shifts: Herding Among Youth, Decline Among Seniors

"Has a sudden boom in savings driven retail investors into stocks?" 

Using the Philippine banking system's deposit liabilities and cash balances as proxies, the answer is definitively no. In 2024, despite record-high bank credit expansion, bank deposit liabilities reported their lowest growth rate of 7.04% since 2012, while PSE volume increased by only 1.4%. (Figure 5, lowest chart)

Figure 6

Next, bank cash and due balances fell to their lowest level since 2018, wiping out the historic liquidity injections by the BSP during the pandemic recession in 2020. (Figure 6, topmost pane) 

Circling back to retail accounts, distributed by generations, the accounts with the biggest gains emerged from Gen Y and Gen Z, posting 48.8% and 26.5% growth in 2024, respectively. (Figure 6, middle image) 

This category hints that with likely insufficient income, these age groups could have fallen prey to the ‘herding effects’ of the PSEi 30's Q1 and Q3 upside volatility. 

In contrast, seniors' growth fell sharply from 14.8% in 2023 to 7.3% in 2024. Seniors, likely with the most savings, topped in 2023, but they accounted for the least growth (3.7%) in online accounts in 2024. 

VII. The Digital Divide in Brokerage: Traditional Brokers Under Pressure 

The surge in online accounts, representing 86.42% of total accounts, has reduced traditional brick-and-mortar accounts to just 13.58%. However, non-online brokers still represent the vast majority of trading participants. 

According to PSE's 2024 infographics, there were 121 active trading participants, but only 37 offered online accounts—meaning 30% of brokers accounted for the bulk of total turnover. (Figure 6, lowest graph) 

This implies that brick-and-mortar brokers are fighting for a rapidly dwindling share of PSE volume, making many vulnerable to sustained low-volume conditions and an extension of the prevailing bear market. 

VIII. Conclusion: A Mirage of Growth 

The Philippine Stock Exchange's reported surge in new accounts in 2024, while seemingly a triumph of financial inclusion and capital market deepening, masks a more complex and potentially troubling reality. 

Our analysis suggests that this growth isn't primarily a result of a robust bull market or a sudden boom in savings. Instead, it reflects heightened volatility, a concentrated market, and a populace grappling with economic hardship. 

The significant disconnect between the dramatic increase in accounts and the persistently low level of active participation—coupled with the overwhelming dominance of institutional investors—paints a picture of a market, where retail investors, particularly younger generations, may be making a "Hail Mary Pass" amid limited economic opportunities. 

The “Potemkin village” nature of the PSEi 30’s performance—propped up by institutional activities and circumstantial signs of coordinated activity—raises deeper concerns: price distortions, misallocated capital, and the quiet transfer of wealth from uninformed and gullible retail players to more sophisticated institutions. 

Moving forward, it’s no longer enough for the PSE to simply lower transaction taxes, launch new products, or expand investor education programs. 

What’s truly needed is a political economy that fosters real economic freedom—grounded in long-term thinking or lower time preference—so savers can build genuine wealth by channeling their capital into productive enterprise and transparent capital markets. 

Above all, capital markets must operate with integrity: free from manipulation, insulated from rigged dynamics, and designed to protect—not exploit—retail investors from becoming cannon fodder in a system tilted toward institutional dominance. 

___

References 

Doug Noland, Uncertainty Squared, June 7, 2025, Credit Bubble Bulletin 

Philippine Stock Exchange, Stock market accounts breach 2M mark, June 9, 2025 pse.com.ph

 

Q1 2025 PSEi 30 Performance: Deepening Debt-Driven Gains Amid Slowing Economic Momentum

 

Bulls of 1929 like their 1990s counterparts had their eyes glued on improving profits and stock valuations.  Not a thought was given to the fact that the rising tide of money deluging the stock market came from financial leverage and not from savings-Dr. Kurt Richebacher 

In this issue:

Q1 2025 PSEi 30 Performance: Deepening Debt-Driven Gains Amid Slowing Economic Momentum

I. An Extension of 2024's Fiscal-Monetary Interplay

II. Debt-Led Growth: Fragile Foundations

III. Revenue Growth: Record Highs, Diminishing Returns

IV. Consumer Sector Strains: Retail and Real Estate Under Pressure

V. Net Income Surge: A Paradox of Profitability

VI. Sectoral Performance: Diverging Trends

VII. Top Movers: Individual Firm Highlights

VIII. A Fragile Foundation: The Risks of Fiscal and Financial Leverage

IX. Transparency and Accuracy Concerns

Q1 2025 PSEi 30 Performance: Deepening Debt-Driven Gains Amid Slowing Economic Momentum

Debt-fueled profits mask deeper signs of strain across retail, real estate, and consumer sectors—even as policy easing and fiscal expansion continue.

I. An Extension of 2024's Fiscal-Monetary Interplay 

The PSEi 30’s Q1 2025 performance is largely a continuation of the trends established throughout 2024 and the past decade. 

Fundamentally, it reflects the model of "trickle-down" economic development, underpinned by Keynesian debt-financed spending. This model is anchored primarily on the BSP’s policy of "financial repression"—or sustained easy money—combined with fiscal stabilizers. It has manifested through the persistent "twin deficits," driven by a record-high "savings-investment gap," and rests on the “build and they will come” dogma. 

Q1 2025 also marks the initial impact of the BSP’s first phase of monetary easing, with Q2 expected to reflect the effects of the second round of policy rate and reserve requirement (RRR) cuts. 

At the same time, the all-time high Q1 fiscal deficit—relative to previous first quarters—was clearly reflected in the PSEi 30’s performance. 

Nota Bene:

PSEi 30 data contains redundancies, as consolidated reporting includes both parent firms and their subsidiaries.

Chart Notes:

1A: Based on current index members; may include revisions to past data

1B: Historical comparison; includes only members present during each respective period; based on unaudited releases

 II. Debt-Led Growth: Fragile Foundations

Figure 1

In Q1 2025, non-financial debt among PSEi 30 firms surged by 7.6% to a record Php 5.87 trillion, with a net increase of Php 413 billion, marking the third-highest quarterly rise since 2020. (Figure 1, upper window)         

In context, this debt level accounted for about 17.12% of total financial resources (bank and financial assets), up from 16.92% in 2024, reflecting increased leverage in the financial system 

In addition, bills payable for the top three PSEi 30 banks soared by 117.5%, rising from Php 393 billion to Php 854 billion, a net increase of Php 461 billion, excluding bonds payable. 

This dramatic increase in the bank’s short-term borrowing likely stems from a sharp decline in the banking system’s liquidity metrics—specifically, the cash and due-from-banks-to-deposits ratio and the liquid assets-to-deposits ratio. 

III. Revenue Growth: Record Highs, Diminishing Returns 

Gross revenues for the PSEi 30 rose by 3.92% to a record Php 1.78 trillion in Q1 2025. However, the net revenue increase of Php 67 billion was the smallest in the past four years, signaling a clear deceleration in growth momentum. (Figure 1, lower image)

Figure 2

This revenue softness partly reflected disinflationary trends, as the Consumer Price Index (CPI) fell to 2.3%—marking its third consecutive quarterly decline. (Figure 2, topmost chart) 

This occurred despite the economy operating near full employment, with the average unemployment rate at 4%, all-time high Q1 fiscal deficit, and amid record levels of bank credit growth, particularly in consumer lending. (Figure 2, middle graph) 

Nonetheless, the validity of the near-full employment narrative appears questionable. Our estimates suggest that approximately 32% of the workforce remains 'functionally illiterate,' raising concerns about the accuracy of PSA labor market data. 

Yet, the paradox is telling: even with aggressive fiscal stimulus and sustained easy money policies, economic returns appear to be diminishing. 

The PSEi 30’s revenue slowdown closely mirrored real GDP growth of 5.4% in Q1 2025, reinforcing the broader downtrend. (Figure 2, lowest diagram) 

Nevertheless, the PSEi 30 revenues accounted for 27% of nominal GDP in Q1 2025, underscoring their substantial footprint in the Philippine economy. Broadening the scope of PSE-listed firms in national accounts would likely magnify this contribution—while simultaneously highlighting the risks posed by mounting economic and market concentration and the fragile underpinnings of "trickle-down" economic development. 

IV. Consumer Sector Strains: Retail and Real Estate Under Pressure

Figure 3

Consumer sector stress was evident in the performance of PSE-listed firms. While retail nominal GDP grew by 7.9% and real consumer GDP by 4.9%, Q1 2025 sales revenue growth for the six largest non-construction listed retail chains—SM Retail, Puregold, SSI Group, Robinsons Retail, Philippine Seven, and Metro Retail Group—slowed to 6.8%, down from 8% in Q4 2024. This deceleration occurred despite aggressive supply-side expansion, underscoring deteriorating growth dynamics. (Figure 3, upper pane) 

Since peaking in 2022, both statistical (GDP) and real indicators (sales) have undergone significant depreciation. Downstream real estate consumer publicly listed retail chains, Wilcon Depot (WLCON) and AllHome (HOME), continue to grapple with substantial challenges, as rising vacancies further deepen the ongoing sales recession. (Figure 3, lower image) 

For example, WLCON reported a 2% quarter-on-quarter increase in store count, but only a 1.2% increase in sales YoY—highlighting excess capacity amid softening demand.

Figure 4

The food services sector also showed signs of strain, despite posting 10.3% revenue growth in Q1 2025—outpacing both nominal and real GDP. (Figure 4, topmost visual) 

Jollibee’s domestic operations, which accounted for 80% of total group sales, led the sector with a 14% gain. 

In contrast, McDonald’s reported an 11.5% sales contraction despite its 'aggressive store expansion' strategy, which includes plans to open 65 new outlets in 2025. This disparity underscores uneven, yet broadly weakening, performance across major retail chains. (Figure 4, middle chart) 

Even electricity consumption has recently deteriorated. Meralco’s electricity consumption growth slowed to 1.5% (in GWh), diverging from historical GDP correlations. This downturn signals weakening underlying demand, despite near-full employment and record-high bank credit expansion. (Figure 4, lowest graph) 

V. Net Income Surge: A Paradox of Profitability

Figure 5

Despite revenue challenges, the PSEi 30’s net income amazingly surged by 16.02% to a record Php 290.6 billion in Q1 2025, with an absolute increase of Php 40.12 billion, the second-highest since 2020. (Figure 5, topmost diagram)

This was driven by a significant increase in net income margin, which reached 16.3%, the highest since 2020, possibly due to asset sales (e.g., SMC’s divestitures). (Figure 5, middle window)

Excluding SMC’s asset sales, PSEi 30’s net income would have stood at Php 269.3 billion—reflecting only a 7.6% increase. This equates to a net profit rise of Php 19.12 billion, rather than the reported Php 40.12 billion

The record Q1 fiscal deficit likely bolstered incomes, both directly through government contracts (e.g., infrastructure projects) and indirectly via increased consumer spending. However, this came at the cost of record public debt and systemic leverage, which reached Php 30.7 trillion. Public debt hit an all-time high of Php 16.683 trillion. (Figure 5, lowest image)

The PSEi 30’s debt-to-net income ratio revealed that Php 1.42 in net debt additions was required for every peso of profit generated. In terms of absolute gains, Php 10.3 in new debt supported each peso of profit increase, highlighting deepening debt dependency.

 

Figure 6 

Paradoxically, despite record borrowing and improved net income, net cash reserves fell to 2022 levels, raising more concerns about systemic liquidity. (Figure 6, upper chart)

VI. Sectoral Performance: Diverging Trends 

By sector:  (Figure 6, lower table) 

Debt: The industrial sector recorded the largest percentage increase at 48.9%, but holding companies led in absolute peso gains Php 165.644 billon, followed by industrials Php 151.4 billion. 

Revenues: Banks achieved the highest percentage revenue growth at 9.8%, but industrials led in nominal terms with Php 17 billion in gains. 

Net Income: Holding and property sectors posted the largest percentage increases at 31% and 7.6%, respectively, with holding firms leading in peso terms Php 33.8 billion. 

Cash: The services sector saw the largest increases in both percentage (30.9%) and peso terms (Php 56 billion). 

VII. Top Movers: Individual Firm Highlights

Figure 7

By firm: (Figure 7, upper table) 

Debt: Ayala Corp, San Miguel Corporation (SMC), and Aboitiz Equity Ventures (AEV) recorded the largest peso increases at Php 74 billion, Php 70 billion, and Php 62 billion, respectively. LT Group (LTG) showed a substantial reduction of Php 24 billion. 

Interestingly, SMC reported a reduction in total debt—from Q4 2024’s record Php 1.56 TRILLION to Php 1.511 TRILLION in Q1 2025—despite substantial capital and operating requirements. This decline coincided with a surge in income, primarily driven by Php 21 billion in energy asset sales (San Miguel Global Power Holding LNG Batangas facility). Even excluding one-off gains, core profits rose by 31% to Php 19 billion. The company also strengthened its cash position, with cash reserves increasing by Php 57 billion year-on-year. How did this happen? (Figure 7, lower graph) 

Revenue: GT Capital (GTCAP) and Meralco posted the largest revenue increases at Php 15.6 billion and Php 9 billion, while SMC recorded the largest decrease at Php 31.8 billion. 

Net Income: SMC led with a Php 34 billion increase, driven by asset sales, while JG Summit (JGS) reported the largest decline at Php 7.2 billion. 

Cash: ICTSI and SMC posted the largest cash expansions at Php 79.9 billion and Php 57.6billion, while LTG (due to debt repayment) and AEV had the largest reductions at Php 38.2 and 15.015 billion 

VIII. A Fragile Foundation: The Risks of Fiscal and Financial Leverage 

Consider the potential impact on the PSEi 30, the broader PSE, and GDP when: 

-Bond vigilantes demand fiscal prudence, pushing interest rates higher

-Heavily leveraged consumer adopt austerity measures.

-Malinvestments from "build and they will come" industries, such as over saturation in real estate (26% residential condominium and office condominium vacancy rates and 22% per Colliers Philippines), and trade sectors, could lead to rising unemployment. 

These risks, compounded by diminishing stimulus effectiveness, threaten the sustainability of PSEi 30 performance and GDP growth. 

For instance, SMC’s business model has become increasingly reliant on recycling its borrowings or asset sales, making it wholly dependent on the sustainability of cheap money to refinance its rapidly growing debt. Neo-Keynesian economist Hyman Minsky famously characterized this as 'Ponzi finance.' (Minsky,1992) 

In essence, the structural risks are real—and growing more visible in each earnings season. 

IX. Transparency and Accuracy Concerns 

As previously stated: 

"The credibility of this analysis rests on disclosures from the Philippine Stock Exchange and related official sources. However, questions persist regarding the possible underreporting of debt and the inflation of both top-line and bottom-line figures by certain firms." (Prudent Investor, May 2025) 

These concerns underscore persistent governance challenges—particularly if elite-owned firms are engaged in systematically underreporting liabilities and overstating revenues or profits. Such practices not only contribute to the distortion of market signals but also foster moral hazard, eventually eroding investor confidence and undermining regulatory integrity. 

___ 

References 

Hyman P. Minsky, The Financial Instability Hypothesis* The Jerome Levy Economics Institute of Bard College May 1992 

Prudent Investor, The PSEi 30 in 2024: Debt-Fueled Expansion Amid Fiscal and Monetary Shifts, Substack May 25, 2025

 

 

Q1 2025 5.4% GDP: The Consensus Forecast Miss and the Overton Window’s Statistical Delusion

 

The vulgar Keynesian focus on consumption unfortunately tempts politicians to approve “stimulus” measures aimed at pumping up this part of total spending…Such arguments, however, fail to grasp the true nature of the boom-bust cycle, especially the central role of investment spending in driving it—and, more important, in driving the long-run growth of real output that translates into a rising standard of living for the general public. Politicians, if they truly wish to promote genuine, sustainable recovery and long-run economic growth, need to focus on actions that will contribute to a revival of private investment, not on pumping up consumption—Robert Higgs 

In this issue

Q1 2025 5.4% GDP: The Consensus Forecast Miss and the Overton Window’s Statistical Delusion

I. BSP’s Easing Cycle and Mainstream’s GDP Expectations

II. The Big Consensus Miss Versus a Contrarian View of the GDP

III. On GDP: Methodological Skepticism and Political Incentives

IV. The Financialization of the Economy and the Raging Bank Stock Market Bubble!

V. Slowing Liquidity and Money Supply Trends

VI. Fiscal Surge Confirmed: Government Spending as the Main Growth Driver: A Shift in GDP Composition

VII. The Fiscal Cost of Stimulus Driven GDP: Record Public Debt

VIII. Employment Paradox: Full Employment, Slower GDP—What’s Going On?

IX. Labor Force Shrinking Amid Population Growth, why? Low-Skilled Workforce = Vulnerable to Inflation

X. Liquidity as a Mirror of the GDP; Phase Two of BSP’s Easing Cycle

XI. Salary Loans: A Proxy for Financial Distress?

XII. CPI Distortions and Price Controls; CPI Spread Headline versus the Bottom 30%: Hunger vs. Hope

XIII. Conclusion: The Politics of Numbers: GDP and the CPI, Faith in the Overton Window 

Q1 2025 5.4% GDP: The Consensus Forecast Miss and the Overton Window’s Statistical Delusion 

A crucial Q1 2025 GDP forecast miss by the consensus, and why embracing mainstream ideas can be perilous for investors. 

I. BSP’s Easing Cycle and Mainstream’s GDP Expectations 

Q1 2025 GDP should fully reflect the initial phase of the Bangko Sentral ng Pilipinas’ (BSP) easing cycle, launched in the second half of 2024 with three interest rate cuts and a reduction in the reserve requirement ratio (RRR). 

While this policy shift may be touted as stimulating credit growth and investment, its actual goal may be to inject liquidity into the system while simultaneously lowering debt servicing costs. 

The combined effects of the 2024 and 2025 easing phases are expected to influence the performance of Q2 and first-half 2025 GDP 

II. The Big Consensus Miss Versus a Contrarian View of the GDP

Figure 1

Two days before the Philippine Statistics Authority (PSA) released its Q1 2025 GDP estimates, consensus forecasts predicted a robust 5.9% growth rate. We challenged this optimism, arguing (in x.com) that it likely overestimated actual performance. (Figure 1, upper image) 

Three critical indicators provide essential clues to the economy’s trajectory: 

1. Bank Revenues Signal Weakening Demand 

First, the combined Q1 2025 gross revenues of two of the Philippines’ largest banks, BDO Unibank [PSE: BDO] and Metropolitan Bank & Trust [PSE:MBT], recorded a fourth consecutive quarterly decline since Q1 2024, with Q1 2025 marking the sharpest deceleration. 

Given that their revenues accounted for approximately 1.72% of 2024 nominal GDP (NGDP), this slowdown signals broader economic weakness. 

Despite aggressive lending, banks appear to be yielding diminishing returns. That said, while banks may be aggressively lending, they may not be "getting a bang for their buck," as an old saw goes. 

This trend underscores inefficiencies in credit allocation, potentially dampening economic activity. 

And yes, Financial GDP slowed in Q1 (Figure 1, lower window) 

2. Declining Headline CPI Reflects Softening Demand 

Headline CPI has now posted three consecutive quarters of decline. We interpret this not merely as a result of supply-side adjustments but primarily as a reflection of weakening aggregate demand—a point we have consistently emphasized. 

3. Fiscal Stimulus: Record Q1 Deficit-Financed Spending

Figure 2 

Third, public spending surged in Q1 2025, resulting in a record fiscal deficit for the period. This aggressive expenditure, designed to bolster GDP, was highlighted in last week’s analysis. (Figure 2, upper graph) 

However, this strategy carries risks, including crowding out private sector activity and exacerbating public debt. 

4. Trendlines and Economic Realities: The Shift to a Slower Growth Path 

Using the PSA’s peso-denominated figures, nominal GDP (NGDP) and real GDP (rGDP) reveal a secondary trendline that has guided economic performance since the pandemic recession. (Figure 2, lower visual) 

Seen from this perspective, this second trendline essentially extrapolates to a slowing GDP trajectory. 

With that said, unless the economy regains its primary growth path, this downward trend will persist, operating under the shadow of significant downside risks. 

We are both amused and amazed by the pervasive optimism—or mass delusion—among establishment analysts, who consistently, or rather perpetually, echo official predictions rather than scrutinizing actual data. 

This tendency, aimed at shaping the Overton Window—the range of ideas deemed acceptable in public discourse—reflects a patent disconnect from economic realities. 

III. On GDP: Methodological Skepticism and Political Incentives 

We are not staunch believers in GDP, which we believe is determined and calculated for political purposes. It relies on structural mismatches between the subjectivism of human actions and the objectivism of the empirical analysis underlying it. Consequently, its calculation is based on numerous flawed assumptions. 

In any case, although authorities can manipulate figures to promote their agenda (as neither the CPI nor GDP is subject to audit), economic reality will ultimately prevail 

Despite this, true enough, the Q1 2025 GDP growth rate of 5.4% fell significantly below consensus estimates, validating our cautious outlook. 

IV. The Financialization of the Economy and the Raging Bank Stock Market Bubble! 

The bank-finance sector’s real GDP growth slowed from 8.3% in Q1 2024 to 7.2% in Q1 2025. (Figure 1, upper chart, again) 

Despite this deceleration, its outperformance relative to other sectors boosted its GDP share to a record 11.7%, signaling the deepening "financialization" of the Philippine economy. 

Strikingly, despite this, bank GDP growth substantially slowed over the last five quarters, from Q1 2024 to Q1 2025 (13.1%, 10.2%, 8.7%, 6.5%, and 5%), affirming my analysis. 

The Raging Financial Stock Market Bubble

Figure 3 

Despite this, the PSE’s bank-dominated financial index continues to hit all-time highs (including this Friday or May 9)—more evidence of the disconnect between share prices and fundamentals or a growing sign of a stock market bubble. (Figure 3, topmost diagram) 

Instead of widespread public participation, its less apparent nature stems from rising share prices being driven mainly by the "national team" or the BSP's cartel- network of banks and financial institutions. 

Bear in mind, the free float market cap share of the top three banks has been instrumental in supporting and currently driving the PSEi 30 to its present levels. 

BDO, BPI, and MBT account for 24.2%—up from a low of 12.76% in August 2020—while including CBC, this rises to 25.9% of the PSEi 30 (as of May 9). These four listed banks rank among the top 10 by free float market cap. (Figure 3, middle chart)

The banks’ outperformance coincides with, or bluntly put, stems from, the BSP’s historic rescue efforts and massive subsidies during the pandemic, which have been carried over to this day.

The percentage share of turnover of the top five banks in the financial index has averaged 23% of the main board volume Year-to-date—indicating a heavy buildup of concentration activities or risk. 

In any case, while banks constitute 60% of the sector’s GDP, the outperformance of non-banks and insurance companies buoyed the sector’s GDP. 

V. Slowing Liquidity and Money Supply Trends 

Liquidity conditions eased further in Q1 2025, with the money supply-to-GDP ratio (M2 and M3) continuing its downward trajectory. (Figure 3, lowest image) 

This trend, which accelerated from 2013 to 2018 and spiked during the 2019–2020 pandemic recession with the BSP’s Php 2.3 trillion injection, has significantly influenced CPI through what the mainstream calls "aggregate demand." 

In the current phase of this cycle, since peaking in 2021, this key measure of credit-driven demand has slowed, contributing significantly to the recent CPI slowdown.

VI. Fiscal Surge Confirmed: Government Spending as the Main Growth Driver: A Shift in GDP Composition 

The third indicator reinforcing our analysis is public spending.

Figure 4

Q1 2025 expenditures surged by 22.43%, outpacing revenue growth and resulting in a record Q1 fiscal deficit of Php 478 billion. 

This nominal spending boom translated into a significant GDP contribution, with government spending GDP spiking by 18.7%—the highest since Q2 2020—excluding government construction spending! (Figure 4, topmost graph) 

However, consumer spending GDP, while rising from 4.7% in Q4 2024 to 5.3% in Q1 2025, saw its share of national GDP decline from 74.7% to 74.3%. (Figure 4, second to the highest window) 

In contrast, government GDP’s share rose from 12.3% to 15.9%, reflecting a structural shift. 

These numbers reflect an ongoing trend: they reveal the peak of consumer spending at 80.6% in Q3 2002, which steadily declined to the 2020 range (67–75%), while conversely, since its 8% low in Q4 2005, government GDP has nearly doubled, with its trend accelerating since 2020. 

All these are evidence that there is no such thing as a free lunch, as whatever the government takes from the private sector for its expenditures or consumption comes at the latter’s expense—the crowding-out syndrome in motion. 

VII. The Fiscal Cost of Stimulus Driven GDP: Record Public Debt 

This shift comes at a cost—record Q1 2025 public debt. Public debt soared from Php 16.05 trillion in Q4 2024 to a historic Php 16.68 trillion, a net increase of Php 633 billion, financing the period’s Php 478.8 billion fiscal deficit! 

This quarterly debt increase, the highest since Q3 2022, reflects an upward trend! (Figure 4, second to the lowest chart) 

Furthermore, a weaker US dollar in March tempered debt growth, reducing the foreign exchange (FX) debt share to 31.8%. However, the FX debt share has been rising since its March 2021 trough. (Figure 4, lowest graph) 

Consequently, Q1 2025’s deficit-to-GDP ratio surged to 7.27%, far exceeding the government’s 5.3% target! 

Looking at all this, both macro (CPI, deficit spending) and micro (bank revenues, bank GDP) factors have converged to highlight a significant economic slowdown, yet despite the establishment’s cheerleading, the diminishing returns of artificial growth driven by implicit backstops—BSP easing and fiscal stimulus—will gradually take their toll and heighten risks. 

As it stands, this marks another round for this contrarian analyst. 

VIII. Employment Paradox: Full Employment, Slower GDP—What’s Going On? 

Let us now examine the other critical forces shaping the statistical economy—GDP.

Figure 5 

Not one among the establishment punditry seems to ask: While the Philippine economy nears full employment, instead of a boost, GDP has been declining—what the heck is going on? 

Employment reached 96.1% in March 2025, averaging 96.02% in Q1 2025 and 95.9% over the 25 months since January 2023, according to Philippine Statistics Authority (PSA) data. (Figure 5, topmost visual) 

However, this near-full employment masks structural weaknesses. 

Consumer per capita GDP, which peaked at 8.98% year-on-year in Q2 2021, has decelerated, with Q1 2025’s 4.4% growth—up slightly from 3.84% in Q4 2024—marking the second-slowest pace since the pandemic. 

IX. Labor Force Shrinking Amid Population Growth, why? Low-Skilled Workforce = Vulnerable to Inflation

While the workforce population continues to grow, the labor force participation rate has formed a "rounding top" pattern, indicating a gradual peak and a potential decline. In simpler terms, more people are being counted outside the labor force. (Figure 5, middle diagram) 

Why is this happening? 

A recent Congressional report on functional illiteracy in the education sector provides a critical clue. 

The Manila Times, May 7, 2025: "BETWEEN 2019 and 2024, 18 million students graduated from the country's basic education system despite being functionally illiterate. This was found by the Senate Committee on Basic Education during its April 30, 2025 hearing on the initial results of the 2024 Functional Literacy, Education, and Mass Media Survey (Flemms)." 

Assuming 16.2 million of these graduates remain in the labor force or are employed, while 10% (1.8 million) have joined the "not in the labor force" category (due to migration, mortality, or disengagement), approximately 32% of the labor force or 33% of the employed population is engaged in low-skilled work 

That’s right. Despite near full-employment data from the PSA, a large segment of the workforce is likely in low-skill, low-wage jobs, possibly concentrated in MSMEs or previously informal sectors, often earning at or below the minimum wage. 

This dovetails with Social Weather Stations (SWS) sentiment surveys, which continue to show elevated self-rated poverty (April 2025) and milestone hunger rates in Q1 2025.

In a nutshell, the most vulnerable population segments—those in low-wage, low-skilled jobs—are also the most exposed to inflation. 

These dynamics explain why poverty perceptions remain high despite supposedly strong employment numbers. 

The shrinking labor force could also be a symptom of “grade inflation,” producing a flood of graduates ill-equipped for skilled work. 

A closer look at PSA employment classifications reveals more. From January 2023 to March 2025, full-time employment averaged 67.3%, while part-time work averaged 31.9%. 

This implies a substantial portion of the workforce is underemployed or working in precarious conditions. The near-full employment figures may therefore overstate the true health of the labor market. 

In effect, the PSA’s employment data provides a façade—masking the fragility of both the labor market and broader economy. 

This explains the sluggish per capita consumption and, by extension, the national GDP. 

X. Liquidity as a Mirror of the GDP; Phase Two of BSP’s Easing Cycle 

Following the BSP’s historic rescue of the banking system during the pandemic, money supply metrics—particularly M1—have closely tracked GDP trends. (Figure 5, lowest chart) 

GDP peaked in Q1 2021, following the M1-to-GDP spike from Q3 2019 to Q3 2023. This spike reflected the pre-pandemic bank credit expansion, intensified by the BSP’s Php 2.3 trillion liquidity injection and other pandemic-related rescue measures. 

Since then, both GDP and M1 have slowed in tandem, though M1 has decelerated at a faster rate. 

This matters, because M1—comprising cash in circulation and demand deposits—underpins the transactions that generate GDP. 

Despite the BSP’s initial easing cycle in 2H 2024, liquidity growth continues to decelerate, even as Universal-Commercial bank credit expansion reaches record highs in peso terms (Q1, 2025) 

The lack of liquidity response to the first easing cycle prompted the BSP to implement a second phase: a deeper RRR cut, the doubling of deposit insurance coverage, and a fourth policy rate cut in April. 

However, monetary policy can only do so much in the face of structural issues. 

XI. Salary Loans: A Proxy for Financial Distress?

Figure 6

Wage earners are increasingly relying on salary loans to bridge the gap to offset reduced purchasing power 

While total salary loans (in pesos) have reached all-time highs, the growth rate of these loans has been slowing since Q1 2022—(strikingly) mirroring the trend in headline CPI. (Figure 6, topmost chart) 

However, slowing growth raises questions: Has the banking system reached peak salary loans? 

Has the pool of eligible borrowers maxed out? Are employees hitting credit limits for salary loans? Or are rising non-performing loans (NPLs) forcing lenders to tighten? (Figure 6, middle graph) 

Either way, the data signals distress among middle-income and lower-income workers, who are increasingly stretched and vulnerable.         

XII. CPI Distortions and Price Controls; CPI Spread Headline versus the Bottom 30%: Hunger vs. Hope

Headline CPI fell to just 1.4% in April (for 2Q GDP)—driven mainly by sharp food price declines. 

Yet little is said about the regulatory basis for this fall. Both rice and pork prices are subject to quasi-price controls via Maximum Suggested Retail Prices (MSRPs). And even here, compliance—particularly for pork—has been reportedly low. (Figure 6, lowest image)

Figure 7

Core CPI stabilized at 2.2% in April 2025, outperforming headline CPI since the MRSP. This reinforces the headline CPI’s decline due to regulatory maneuvers. The core index’s downtrend since Q2 2023 signals persistent demand weakness. 

However, rising month-on-month (MoM) rates suggest a potential bottom. This pattern mirrors previous episodes (2015, 2019), where food prices fell below Core CPI, acting as a staging point for the next inflation cycle. (Figure 7, topmost and middle charts) 

Regulatory and statistical distortions raise doubts about whether CPI distortions accurately reflect real market conditions. 

Another revealing metric is the spread between the national CPI and the Bottom 30% CPI, where food deflation for the Bottom 30% in April drove the spread sharply negative—reaching its lowest level since 2022—yet, while these numbers suggest that falling food prices for the poor should reduce hunger, the latest SWS survey indicates persistently high hunger rates. (Figure 7, lowest graph) 

Once again, the statistical data points diverge from lived experience. 

XIII. Conclusion: The Politics of Numbers: GDP and the CPI, Faith in the Overton Window 

The government’s CPI reveals numerous distortions, clearly being manipulated downward through regulation and statistical adjustments "benchmark-ism" to justify the BSP’s continued easing cycle, aimed at addressing debt and liquidity dynamics, as well as boosting GDP—which the establishment promotes as a stimulus. 

Yet behind the curated optimism—such as "upper-middle-income status"—lies a more disturbing truth: government statistics increasingly defy both economic logic and market signals. 

Market prices—USD Philippine peso exchange rate and Philippine Treasury yields—offer little support for these narratives. 

And yet, the Overton Window shaped by official optimism persists. 

Analysts, pundits, and policymakers alike remain obsessed with the hope it offers—ignoring hard realities staring them in the face. 

Until these contradictions are resolved, the statistical economy and the real economy will continue to drift further apart. 

Or, confronting these realities is essential to understanding the Philippine economy’s true trajectory.