Has the Philippine Government Won Its Battle Against Inflation? SWS Self-Poverty Survey Disagrees, Unveiling Its Hidden Messages

There is no escape from debt. Paying for the government’s fictitious promises in paper money will result in a constantly depreciating currency, thereby impoverishing those who earn a wage or have savings. Inflation is the hidden tax, and it is very convenient for governments because they always blame shops or businesses and present themselves as the solution by printing even more currency. Governments want more inflation to reduce the impact of the enormous debt and unfunded liabilities in real terms. They know they can’t tax you more, so they will tax you indirectly by destroying the purchasing power of the currency they issue—Daniel Lacalle

 In this issue

Has the Philippine Government Won Its Battle Against Inflation? SWS Self-Poverty Survey Disagrees, Unveiling Its Hidden Messages

I. Unveiling the Likely Hidden Messages Behind the Declaration of Victory Over Inflation

II. Treasury Curve was Spot On about Inflation, Short-Term Treasury Yields Plunge! Will the BSP Cut by 50 bps?

III. Supply-Side Disinflation? Despite Strong Credit Growth, Manufacturing Remains in the Doldrums, as Reflected by PPI Deflation and Output Sluggishness

IV. Supply-Side Disinflation? Lethargic Consumer Imports and July FDI Reflect Frail Capital Goods Imports

V. Demand-Side Disinflation? September CPI Plunged Despite Vigorous August Consumer Bank Lending, Liquidity Growth Dived

VI. Disinflation with Employment at Near Historic Highs Backed by a Credit Boom? Slower Deficit Spending Puts Pressure on Liquidity Strains

VII. SWS’s Self-Rated Poverty Survey versus the Government’s CPI 

Has the Philippine Government Won Its Battle Against Inflation? SWS Self-Poverty Survey Disagrees: Unveiling Its Hidden Messages

A Philippine media outlet proclaimed that the Philippine government won its battle against inflation, while a private survey contradicted this view. Who's right?

I. Unveiling the Likely Hidden Messages Behind the Declaration of Victory Over Inflation

Figure 1 

Two interesting headlines that hallmark this week’s conflicting message on inflation. 

Inquirer.net, October 7, 2024: The Philippines may now declare victory in its long and painful fight against inflation after price growth last month eased to a four-year low, helping create the perfect economic condition for gradual interest rate cuts…The BSP is now at a point where it has to undo its most forceful tightening actions in two decades, which had sent the benchmark rate to its highest level in 17 years to tame stubbornly high inflation. Cutting borrowing costs is necessary amid market predictions that the economy may grow below the government’s target for this year after consumption showed signs of weakening…Moving forward, Governor Eli Remolona Jr. said the central bank would take “baby steps” until the key rate falls to 4.5 percent by the end of 2025, suggesting that monetary authorities would unlikely resort to jumbo cuts that may stir up market fears that the economy is headed for a hard landing. (bold mine)

SWS.org.ph, October 9, 2024: The national Social Weather Survey of September 14-23, 2024, found 59% of Filipino families rating themselves as Mahirap or Poor, 13% rating themselves as Borderline (by placing themselves on a line dividing Poor and Not Poor), and 28% rating themselves as Hindi Mahirap or Not Poor. The September 2024 percentage of Self-Rated Poor families rose by 1 point from 58% in June 2024, following a significant 12-point rise from 46% in March 2024. This was the highest percentage of Self-Rated Poor families since June 2008. The estimated numbers of Self-Rated Poor families were 16.3 million in September 2024 and 16.0 million in June 2024. The percentage of respondent households rating themselves as poor was applied to the Philippine Statistics Authority medium-population projections for 2024 to arrive at the estimated numbers of Self-Rated Poor families… The September 2024 survey found the percentage of Borderline families at 13%, up by 1 point from the record low 12% in June 2024 following an 18-point decline from 30% in March 2024… As of September 2024, the percentage of Not Poor families was at 28%, 2 points below the record high 30% in June 2024. (bold mine)

First and foremost, what does "declare victory in its long and painful fight against inflation" mean? (Figure 1, upper tweet)

The Philippine CPI posted two straight months of DEFLATION (statistical price decreases) in September (-0.37%) and October (-0.19%) 2015; yet, the media and establishment experts barely made such a brazen pronouncement until now.

Yes, Q3 2024 statistical inflation of 3.2% has dropped to its 9-year support level, but this doesn’t mean that the inflation cycle has been broken.

Figure 2 

In Q3 2015, the CPI slipped into deflation at -0.1%, which prompted banks to accelerate their net claims on central government (NCoCG) or indirect QE. Ironically, this germinated the current inflation cycle, which is now on its ninth-year.  (Figure 2 upper image)

Despite its recent decline, given that the CPI has remained on an uptrend since 2015 and appears to have settled at the support levels, what assurances does the establishment hold that it won’t be subject to a third wave?

Second, the September CPI of 1.9% doesn’t translate to the evisceration of inflation; it only means that GENERAL prices have risen at REDUCED rates (or have dropped to within the BSP’s target), but they are still RISING!

In fact, BSP data tell us that even in the context of the understated inflation rate, over 99% of the purchasing power of the peso has been eroded since 1957! How is that for "declaring victory over inflation"? (Figure 2, lower chart)

On the other hand, while authorities and media bask in this pretentious statistical feat, a private sector survey tell us a different story: slower inflation has exposed the persistent and growing burden of a lower standard of living! (More on this below.) (Figure 1, lower tweet)

Third, "declaring victory over inflation" was NEVER a goal of the BSP’s monetary policy anchored on inflation targeting.

From the BSP: The primary objective of the BSP's monetary policy is “to promote price stability conducive to a balanced and sustainable growth of the economy” (Republic Act 7653). The adoption of inflation targeting framework of monetary policy in January 2002 is aimed at achieving this objective. Inflation targeting is focused mainly on achieving a low and stable inflation, supportive of the economy’s growth objective. This approach entails the announcement of an explicit inflation target that the BSP promises to achieve over a given time period. (bold mine)

There is no defined quantification or qualification of "low and stable inflation" because statistical inflation has always been a subjective measure, arbitrarily defined by the BSP.

That said, the goal of the politics behind inflation targeting has been to keep the inflation "genie" confined within the boundaries of the BSP’s proverbial "lamp."

That’s because inflation, as a hidden tax, benefits the government most.

However, the inflation genie has been set loose, or has gone beyond its bounds, marking the difference between the previous era and today.

In this way, the BSP can be conservatively said to have been "asleep at the wheel."

At worst, and unbeknownst to the public, the BSP’s policies have unleashed the inflation genie!

Or, although authorities continue to push the narrative of supply-side-driven inflation to shift the blame onto the private sector, the current inflation cycle signify an unintended consequence of their policies!

Yet, has anyone among the array of establishment experts, including those in government, been correct in predicting the incumbent inflation cycle? 

Fourth, the CPI is just a statistic. While its intent is to approximate changes in general prices, it neither reveals the full accuracy nor explains the causes of those changes. 

The fact is that inflation statistics are misleading.

My inflation rate and yours are different.  This is because of dynamic individual spending habits and ever-changing preferences that vary not only over time but also differs across individuals. 

Is it not the averaging a Netflix subscription and rice an exercise of apples-to-oranges comparison?  If so, would this not be applied to the CPI? 

Or, not only is the weighted averaging of goods and services across different groups of people a flawed metric, but people’s spending preferences are constantly changing! 

How accurate is an inflation rate derived from averaging the spending patterns of billionaires with those of the bottom 30%? 

Even on a personal level, my preferences are always changing. If I prefer sautéed prawns with bread this moment, adobo with rice later, and only sinigang for tomorrow, how could the inputs used to create these meals be accurately averaged? How would this apply to a population of 110 million people? 

Furthermore, because the CPI is a politically sensitive statistic—created and calculated by politically sensitive institutions—it is prone not only to errors (in assumptions, inputs, etc.) but also to political biases. 

For instance, changing the base year of the CPI can lead to different outcomes. If I’m not mistaken, using the now-defunct 2006 base would produce a much higher CPI today than the current 2018 base. 

Since the CPI is used as a primary benchmark for the market’s pricing of interest rates, wouldn’t the government—as the biggest borrowers—have the incentive or motivation to suppress it to influence the cost of borrowing? 

Fifth, what happened to journalism? 

Isn’t journalism about "seeking truth and providing a fair and comprehensive account of events and issues"? 

When media outlets use ambiguous qualifications like " declare victory against inflation" to describe the "perfect economic condition for gradual interest rate cuts" intended to support "consumption (which) showed signs of weakening," could this not signify cheerleading or an advocacy for a biased policy stance? For whose benefit? 

Might this be seen as advancing the interests of vested groups, particularly the primary beneficiary, the government and the politically connected elites? How is this different from propaganda, misinformation, or disinformation? 

Importantly, if an alleged news article makes an economic generalization, why would it lack narratives supported by economic logic? 

Or, are low rates a GUARANTEE of an INCREASE in consumption? How so, and based on what theory and evidence? 

Why cite partisan and non-sequitur explanations from "establishment experts" whose principal-agent problems have hardly been laid bare to the public? 

Have media outlets distilled such insights or selected statements for print that only promote their biases? I’ve seen this happen (personally) before, which is why I refuse interviews. 

Sixth, if media pronouncements reflect exuded marketplace confidence, could such article/s signify a manifestation of the magazine/headline cover indicator or express an extreme state of sentiment? 

Or have the media’s declarations echoed the "overconfidence" stemming from recent euphoria over the price spikes in Philippine assets (stocks, bonds, and the peso)? 

Seventh and lastly, could this be related to the upcoming elections? 

Will declaring 'victory in its long and painful fight against inflation' be part of the campaign to promote the electoral chances of the administration’s national slate in the 2025 midterm elections? 

Ultimately, the establishment's obsession has been to promote a regime of easy money, using the declaration of triumph over inflation as justification. 

As the great Austrian economist Ludwig von Mises once explained 

The popularity of inflation and credit expansion, the ultimate source of the repeated attempts to render people prosperous by credit expansion, and thus the cause of the cyclical fluctuations of business, manifests itself clearly in the customary terminology. The boom is called good business, prosperity, and upswing. Its unavoidable aftermath, the readjustment of conditions to the real data of the market, is called crisis, slump, bad business, depression. People rebel against the insight that the disturbing element is to be seen in the malinvestment and the overconsumption of the boom period and that such an artificially induced boom is doomed. They are looking for the philosophers' stone to make it last (Mises, 2019)  

II. Treasury Curve was Spot On about Inflation, Short-Term Treasury Yields Plunge! Will the BSP Cut by 50 bps? 

While the headline CPI plummeted from 3.3% in August to 1.9% in September—its lowest monthly rate since May 2020—excluding food and energy, the core CPI slipped to 2.4%, signifying 17 of 18 months of decline (one unchanged) since peaking at 8% in March 2023. 

Before that, we showed how changes in the Philippine yield curve have accurately predicted the CPI slump. 

despite the 4.4% CPI bump in July (and Q2 6.3% GDP), the Philippine treasury market continues to defy inflationary expectations by maintaining a deep inversion of the curve’s belly, which again signals slower inflation, upcoming BSP cuts, and increased financial and economic uncertainty. (Prudent Investor, August 2024) 

… 

Moreover, the curious take is that despite all the massive stimulus, the belly’s inversion in the Philippine treasury market has only deepened at the close of August.  

This does not suggest a build-up of price pressures or a strong rebound in the private sector. On the other hand, rising short-term rates indicate intensifying liquidity issues.   

In the end, while Marcos-nomics stimulus seems to have reaccelerated liquidity, a resurgence of inflation is likely to exacerbate "stagflationary" pressures and increase the likelihood of a bust in the Philippines’ credit bubble. (Prudent Investor, September 2024) 

Volatility has crescendoed in the Philippine treasury curve.

Figure 3

The present slope exhibits an astounding collapse in short-term rates (STIR), manifesting institutional market expectations of substantial cuts in BSP rates. Will the BSP cut by 50 bps this October? (Figure 3, upper graph) 

Yet, the curve’s magnified volatility has been incredible: following the gradual transition from flat to an inverted curve, then swiftly to a bullish steepening, and next to the current abrupt regression to a partial belly inversion—even with the plunge in STIR—how could this not be conducive to the rising risks of stagflation?

III. Supply-Side Disinflation? Despite Strong Credit Growth, Manufacturing Remains in the Doldrums, as Reflected by PPI Deflation and Output Sluggishness 

While we perceive government statistics with cynicism, we still use them because almost every financial market participant does.

Instead of focusing on the potential factors for the drop, the mainstream fixates on the prospective policy easing by the BSP.

Could the plunge in inflation have been a supply-side phenomenon marked by a glut?

In a word: Barely.

Manufacturing value grew by 2.9% in June, 6.45% in July, and 1.78% in August, while volume was up by 3.2%, 6.9%, and 2.8% over the same period.

Meanwhile, despite strong Universal Commercial Bank (UCB) loan growth to this sector—rising by 8.9%, 9.5%, and 9.8%—the Producer Price Index (PPI) deflated by -0.2%, -0.4%, and -1%. (Figure 3, lower chart)

Here’s the question: Why has robust credit growth not been reflected in output performance?

Worse yet, why is the deflation in the PPI escalating? PPI defined by the Philippine Statistics Authority, "measures the average change over time in the prices of products or commodities produced by domestic manufactures and sold at factory gate prices."

Where has all the credit money generated gone?

Has it been diverted to real estate or other undeclared allocations? Or has it been used for refinancing existing liabilities?

IV. Supply-Side Disinflation? Lethargic Consumer Imports and July FDI Reflect Frail Capital Goods Imports

If manufacturing growth has been unimpressive or sluggish, the situation is even worse for imports.

Imports in USD posted a 7.3% YoY contraction in June, then rose by 7.3% in July and 1.8% in August.

Converted to average pesos, imports were down by 2.63% YoY in June, surged by 14.3% in July, and grew by 4.6% in August, with the last month’s growth reflecting revaluation effects from a strong peso.

Figure 4

Here’s the thing: Consumer goods USD imports contracted by 7.3% in June, increased by 3.1% in July, and remained unchanged in August. (Figure 4, topmost pane)

Meanwhile, capital goods imports shrank by 8.8% in June but surged by 9.5% and 9.6% in the next two months. A substantial segment of the YoY changes reflects base effects. (Figure 4, middle diagram)

Nonetheless, the growth in capital goods imports partly reflected foreign direct investment (FDI).

The prosaic July FDI growth of 5.5% YoY (7.5% year-to-date) resonated with mediocre import growth. (Figure 4, lowest graph)

Yet, debt accounted for 74.3% of total FDI inflows and 63.5% of year-to-date FDI inflows. How much of this represent actual investments?

Still, why is the growth rate of FDIs declining?

Importantly, where are the investment pledges from the US-NATO allies?

V. Demand-Side Disinflation? September CPI Plunged Despite Vigorous August Consumer Bank Lending, Liquidity Growth Dived

Was the CPI slump a function of demand?

In short, yes!

We should put into context the seismic transformation of the Philippine banking system, with its recent focus on consumer loans coming at the expense of the supply side.

Figure 5

Universal Commercial (UC) bank consumer lending slowed from 24.3% year-over-year (YoY) in July to 23.7% in August, marking its slowest pace since November 2023. (Figure 5, topmost chart)

Consumer loan growth was strong across all segments in August: credit cards +27.44%, auto loans +19.3%, salary loans +16.4%, and others +26.8%.

Meanwhile, production loans continue to accelerate, expanding from 8.8% in July to 9.4% YoY in August, primarily in the real estate and trade sectors.

Overall, UC bank lending grew from 10.4% to 10.9% in August (Figure 4, second to the highest graph)

Despite mainstream claims of "restrictiveness" or "tightness" due to elevated rates, UC Bank's loan growth has been on an uptrend. Still, the CPI continues its downward trajectory!

Worse yet, despite this, financial liquidity plummeted in August.

M3 growth, which was 7.3% in July, dived to 5.5% in August. Incredible.

Incidentally, the yield curve inversion reflected this!

Once again, what happened to all the record money creation by the banking system and the BSP? Why the black hole?

VI. Disinflation with Employment at Near Historic Highs Backed by a Credit Boom? Slower Deficit Spending Puts Pressure on Liquidity Strains

Why could this be happening when employment rates are near all-time highs?

It was 96% last August, only a smidgen lower than the 96.9% record set last December 2023. (Figure 5, second to the lowest window)

Could it be that, aside from trade, government jobs were the primary source of growth in August? (Figure 5, lowest image)

Or could it also have been that employment growth has been mostly about low-quality labor? Alternatively, could the employment data also have been embellished?

Figure 6

Moreover, as we previously noted, because Philippine public spending has slowed, the fiscal deficit slightly "narrowed" year-to-date (YTD) as of August. Public spending has tracked the CPI over the long-term. (Figure 6, topmost diagram) 

As a result, aided by the strong peso, public debt marginally weakened in August.

Moreover, has the stalling growth in system leverage (UC bank credit + public debt) contributed to the demand pressures reflected in the CPI? (Figure 6, second to the highest graph)

Consequently, net claims on the central government (NCoCG) by banks and the BSP plateaued or consolidated. (Figure 6, second to the lowest chart)

Or, aside from the BSP, liquidity injections channeled through banks have slowed slightly.

This, combined with a stealth rise in bank non-performing loans (NPLs) and elevated levels of held-to-maturity assets (HTMs), has contributed to the liquidity squeeze.

And this has occurred despite the record nominal bank credit expansion and historically high employment rates. The plunge in September’s CPI might reflect a downturn in public and private demand, possibly worsened by mounting signs of a liquidity shortfall.

VII. SWS’s Self-Rated Poverty Survey versus the Government’s CPI 

Things don’t happen in a vacuum.

The BSP suddenly announced a massive reduction of the banking system’s reserve requirement ratio (RRR) on September 20th, obviously in response to such developments. The adjustment takes effect on October 25.

The PSA’s September CPI data exhibits a broad-based decline in price growth. While food prices had the biggest influence on the CPI’s significant downside volatility, slowing aggregate demand reflected the diminishing pace of price increases across most sectors. (Figure 6, lowest image)

All these factors point to the SWS Q3 data indicating an increase in self-rated poverty, which not only highlights the decline in living standards for a significant majority of families but also emphasizes the widening gap between the haves and the have-nots.

As a caveat, survey-based statistics are vulnerable to errors and biases; the SWS is no exception.

Though the proclivity to massage data for political goals is higher for the government, we can’t discount its influence on private sector pollsters either.

In any case, we suspect that a phone call from the office of the political higher-ups may compel conflicting surveys to align as one.

____

References 

Ludwig von Mises, The Boom Is Worse than the Bust, November 30, 2018 Mises.org 

Prudent Investor, The Philippines' July 4.4% CPI: Stagflation Remains a Primary Political, Economic, and Financial Risk August 12, 2024

 

Prudent Investor, Philippine Government’s July Deficit "Narrowed" from Changes in VAT Reporting Schedule, Raised USD 2.5 Billion Plus $500 Million Climate Financing September 1, 2024

  

Weakening Consumers: Philippine August CPI fell to 3.3% as Q2 2024 Consumer Non-Performing Loans Accelerated

 At the outset, the masses misinterpreted it as nothing more than a scandalous rise in prices. Only later, under the name of inflation, the process was correctly comprehended as the downfall of money—Konrad Heiden in 1944

In this issue

Weakening Consumers: Philippine August CPI fell to 3.3% as Q2 2024 Consumer Non-Performing Loans Accelerated

I. August CPI’s 3.3% Validated the Philippine Yield Curve; Continuing Loss of the Peso’s Purchasing and Magnified Volatility

II. Utilities Overstated the CPI, Headline CPI versus Bottom 30% CPI Translates to Broadening Inequality

III. Plummeting CORE CPI Amidst Record Consumer Bank Loans

IV. Slowing CPI Despite Record Streak in Public Spending and Modest Supply-Side Growth

V. Examining the Discrepancies in Employment Data and Consumer Demand

VI. Philippine Banking System’s Seismic Transformation: The Shift Towards Consumer Lending and its Developing Risks

VII. The Dynamics Behind Record High Consumer Borrowings: Inflation, Addiction and Refinancing

VIII. Surging Consumer NPLs as Driver of Falling Inflation

IX. Expect a Systemic Bailout: Pandemic 2.0 Template; a Third Wave of Inflation 

Weakening Consumers: Philippine August CPI fell to 3.3% as Q2 2024 Consumer Non-Performing Loans Accelerated

I. August CPI’s 3.3% Validated the Philippine Yield Curve; Continuing Loss of the Peso’s Purchasing and Magnified Volatility 

The recent decline in the Philippine CPI, which fell to 3.3% in August, is a symptom of strained consumers. Overleveraging has led to an acceleration in consumer loan NPLs in Q2. 

GMANews, September 5, 2024: The Philippines’ inflation rate eased in August, after an acceleration seen in the prior month, due to slower increases in food and transportation cost during the period, the Philippines Statistics Authority (PSA) reported on Thursday. At a press conference, National Statistician and PSA chief Claire Dennis Mapa said that inflation —which measures the rate of increase in the prices of goods and services— decelerated to 3.3% last month, slower than the 4.4% rate in July. This brought the year-to-date inflation print in the first eight months of 2024 to 3.6%, a slowdown from the 5.3% rate in the same period last year and still within the government’s ceiling of 2% to 4%. 

Quotes from previous posts… 

despite the 4.4% CPI bump in July (and Q2 6.3% GDP), the Philippine treasury market continues to defy inflationary expectations by maintaining a deep inversion of the curve’s belly, which again signals slower inflation, upcoming BSP cuts, and increased financial and economic uncertainty. (Prudent Investor, August 2024)

__ 

Moreover, the curious take is that despite all the massive stimulus, the belly’s inversion in the Philippine treasury market has only deepened at the close of August. 

This does not suggest a build-up of price pressures or a strong rebound in the private sector. On the other hand, rising short-term rates indicate intensifying liquidity issues.  

In the end, while Marcos-nomics stimulus seems to have reaccelerated liquidity, a resurgence of inflation is likely to exacerbate "stagflationary" pressures and increase the likelihood of a bust in the Philippines’ credit bubble. (Prudent Investor, September 2024) 

Let us examine the data in relation to other relevant metrics.

First, the August Consumer Price Index (CPI) fundamentally confirmed the signals provided by the Philippine yield curve regarding the resumption of its downtrend. We will explore this in more detail later.

Figure 1

Second, a slowing CPI does not imply that prices are falling, as some officials have suggested. Rather, it indicates a deceleration in the rate of price increases for the average goods and services in the government’s CPI basket. That is to say, authorities continue to use the inflation channel as an indirect means of taxation. Even from the standpoint of the CPI, the Philippine peso has lost over 99% of its purchasing power since 1957. (Figure 1, topmost chart)

Third, the headline CPI has become increasingly volatile, as evidenced by its significant fluctuations: it surged from 3.7% in June to 4.4% in July, then decreased to 3.3% in August. The rate of change in the Month-on-Month (MoM) data illustrates this volatility. (Figure 1, middle image) 

Notably, with the largest weighting in the CPI basket, food is usually the culprit for this volatility. 

II. Utilities Overstated the CPI, Headline CPI versus Bottom 30% CPI Translates to Broadening Inequality 

Fourth, the upside spike in housing, water, gas, and other utilities inflated the headline CPI. Rent and utilities were the only categories that experienced an increase in August on a month-on-month (MoM) basis. (Figure 1, lowest graph) 

Without the impact of rent and utilities, the headline CPI would have been drastically lower. This category has a significant weighting in the CPI basket, with a 21.4% share.

Figure 2

Fifth, the decline in the rate of price increases, as indicated by the headline CPI of 3.3% in August, had minimal impact on the bottom 30% of households, who experienced a CPI of 4.7% (down from 5.8% in July). However, the disparity between these categories remains at 2018 levels. (Figure 2, topmost diagram) 

Even with its flawed measurement, the government’s CPI highlights the broadening inequality. 

III. Plummeting CORE CPI Amidst Record Consumer Bank Loans 

Sixth, the volatility of the headline CPI hasn’t been corroborated by the non-food, non-energy Core CPI, which continues to decline. 

Although the gap between the headline CPI and the Core CPI has narrowed, it remains substantial due to the relatively faster decline in the Core CPI. (Figure 2, middle graph) 

Seventh, the law of supply and demand dictates that if the supply of goods or services exceeds demand, prices will fall. Conversely, if demand outstrips supply, prices will rise. 

In the current context, the weakening of the Core CPI is a symptom of the sustained erosion of domestic demand. 

This is exemplified by the consistently diminishing rate of price increases in retail components such as furnishing household equipment and maintenance, clothing and footwear, and personal care and miscellaneous goods. (Figure 2, lowest chart)

Figure 3

Eighth, the growth of total universal-commercial bank loans remains on a remarkable streak, posting a 10.4% growth rate last July—its third consecutive month of 10% growth. (Figure 3, topmost window) 

Moreover, universal commercial bank household credit grew at an even faster pace of 24.3%, marking its twenty-third consecutive month of over 20% growth! (Figure 3, middle diagram) 

Given this explosive growth in consumer and overall bank credit, which should have theoretically stimulated demand, why hasn’t it boosted the CPI?

IV. Slowing CPI Despite Record Streak in Public Spending and Modest Supply-Side Growth 

Ninth, what has happened to the "Marcos-nomics stimulus" and the ramping up of Q2 record debt-financed public spending? Why have these measures not bolstered demand and the CPI? (Figure 3, lowest chart)

Figure 4

Tenth, the supply side has hardly been a factor in the CPI slowdown.

The slackening of imports, which were down 7.5% (in USD million) in June, was not an anomaly but a trend since peaking in August 2022.  (Figure 4, topmost pane) 

Domestic manufacturing has also not shown excessive growth. Manufacturing posted a 4.7% value growth and 5.25% volume growth last July, marking the third highest monthly growth since August 2023 (a year ago). (Figure 4, lower left chart) 

The headline S&P Global Philippines Manufacturing PMI reported an unchanged index of 51.2 in August, unchanged from July. (Figure 4, lower right chart) 

The PMI index has been consolidating with a downside bias, as demonstrated by the "rounding top." 

If the supply side had managed to grow at a minor to moderate rate in recent months, then demand represents the weak link behind the sliding CPI rate.  

The lack of significant supply-side expansion suggests that the primary driver of the CPI slowdown is the erosion of domestic demand. 

V. Examining the Discrepancies in Employment Data and Consumer Demand 

Why so?

The employment data is unlikely to provide a satisfactory explanation. 

Aside from the questionable nature of the statistics, the government attributed the swelling of July's employment rate to fresh graduates entering the workforce.

 

GMANews, September 6: The number of unemployed Filipinos increased in July as millions of young individuals, who graduated from college or senior high school and entered the labor force, did not land jobs during the period, the Philippines Statistics Authority (PSA) reported on Friday.

The decrease in the labor force participation rate from 66% in June to 63.5% in July likely underestimated the true number of unemployed individuals.

Figure 5

It's worth noting that a "rounding top" appears to be a persistent trend in the labor participation rate. (Figure 5, topmost diagram)

If this pattern continues, then for whatever reasons, it's likely that the labor force will shrink, which would negatively impact the employment population.

While most sectors reported decreases in employment (MoM) last July, the government (public administration and defense), finance, and IT sectors reported significant gains. The increase in government jobs is not surprising, given that they are one of the largest employers, particularly with the record high public spending in Q2. (Figure 5, middle image)

In any case, despite the second-highest employment rate in June, the rise in unemployment in July suggests that the substantial growth in bank credit has not been sufficient to create enough investments to absorb new graduates. 

The irony is that even if this data were close to accurate, the high employment rate demand story has been incongruous or inconsistent with the slowing consumer, the record high consumer bank credit levels, and the CPI. 

Another paradox is that the volatility in the labor data may be influenced by social mobility. In reality, the Philippine labor market has been beset by the byzantine nature of onerous labor regulations. 

VI. Philippine Banking System’s Seismic Transformation: The Shift Towards Consumer Lending and its Developing Risks 

Beyond that, the slope of the Philippine Treasury markets provides insights into economic conditions, inflation, and potential risks. 

Not only has it accurately predicted CPI dynamics, but it has also indicated the likelihood of increased economy-related risks. 

Consider this: Why has the CPI been on a temporary downtrend despite record levels of Universal Commercial bank consumer lending? This observation applies even to production loans, but our focus here is on consumer loans. 

The banking system’s total consumer loans, including real estate loans, surged to an all-time high of PHP 2.81 trillion in Q2 2024. This represents a record 21.75% of total bank lending, meaning that one-fifth of all Universal Commercial bank lending has been directed towards consumers.  (Figure 5, lowest graph) 

Four-fifths of these, which also demonstrates a declining share, represent lending to the supply side sector, primarily benefiting the elites.

Figure 6

This data represents evidence that Philippine banks have undergone a seismic transformation: a preference for consumers over producers. 

From a sectoral perspective, banks have also shifted their lending preferences toward high-risk, short-term lending—specifically credit cards and salary loans. 

Since 2017, the percentage share of credit cards relative to the total has surged to a milestone high, while the share of salary loans has also increased since 2021. Notably, the rapid growth of these segments has come at the expense of real estate and motor vehicle loans. (Figure 6, topmost image) 

Strikingly, the share of consumer real estate loans peaked at 45% in Q4 2021 and then nose-dived to 37% by Q2 2024. 

In a nutshell, banks have "backed up their trucks" to rapidly leverage Philippine consumers. 

VII. The Dynamics Behind Record High Consumer Borrowings: Inflation, Addiction and Refinancing 

The all-time high in consumer lending did not emerge in a vacuum. 

Primarily, consumers have turned to credit cards and salary loans to compensate for the loss of purchasing power due to inflation. 

Secondly, this trend has deepened consumers' reliance on credit cards and salary loans. 

Thirdly, the extended leveraging of consumers' balance sheets necessitates further credit to refinance or roll over existing debt. Some individuals use multiple credit cards, while others may tap into salary loans or borrow from the supply side for the refinancing of existing debt. 

It is important to note that the consumer credit data reveals an escalation in concentration risks. 

The surge in consumer lending indicates that only a small segment of the population has access to formal credit systems. 

The BSP’s Q2 2023 Financial Inclusion data reveals that consumer credit, including credit cards, salary loans, and other forms of bank credit, is limited to a minority segment of the Philippine population. (Figure 6, middle table)

Not only in finances, this group—primarily from the high-income sector—has been capturing a significant portion of the nation’s resources funded by credit. They are the primary beneficiaries of the BSP’s inflation policies. 

However, they also represent the most fragile source of a potential crisis. 

Conversely, the low level of participation in formal banking does not equate to a low level of leverage for the unbanked population. Instead, this larger segment relies on informal sources for credit. 

However, they also represent the most fragile source of a potential crisis.

Lastly, having reached their borrowing limits, some consumers have begun to default. 

VIII. Surging Consumer NPLs as Driver of Falling Inflation

Have the media or mainstream experts addressed this issue? 

Not when financial services are being marketed or deposits solicited; discussing conflicts of interest remains a taboo.

Despite subsidies and relief measures, the Non-Performing Loans (NPL) in consumer lending have been rising, driven primarily by credit cards and salary loans. (Figure 6, lowest chart)

Figure 7

Again, the all-time high in credit card and salary loans has led to a surge in NPLs. According to the BSP’s various measures, the NPLs for credit cards and salary loans relative to total NPLs in the Total Loan Portfolio (TLP) have been intensifying since 2021 (for salary loans) and 2023 (for credit card loans). (Figure 7, topmost, second to the highest and lowest-left and right graphs)

Despite the massive BSP support, the fastest-growing segments for banks are also the primary sources of their weaknesses. 

Published banking and financial data may be understated due to these relief measures and other factors. 

Why are banks significantly borrowing (focusing on short-term loans), competing with San Miguel, both listed and unlisted non-financials, financials, and the government? 

So, there you have it. The slowing inflation in the face of rampant credit growth is a symptom of the mounting balance sheet problems faced by consumers. 

Borrowings are not only used for spending but are increasingly being utilized to recycle loans—the Minsky Ponzi syndrome process is in motion. 

Extending balance sheet leveraging has not only weighed on consumer spending but has also caused a rise in credit delinquency. 

It also exposes the façade of a 6.3% Q2 GDP. 

The lesson is: current conditions reveal not only the fragile state of consumers but, more importantly, exposes the vulnerability of Philippine banks. 

The treasury markets have been signaling these concerns. 

IX. Expect a Systemic Bailout: Pandemic 2.0 Template; a Third Wave of Inflation 

But it doesn’t end here. 

Do you think the government would allow GDP to sink, which would deprive them of financing for their boondoggles? 

Naturally, no. So, authorities have embarked on a tacit "Marcos-nomics stimulus" to prevent cross-cascading defaults, initially marked by a resurgence of illiquidity. 

With the upcoming elections, public spending has surged, leading to increased monetary growth, as indicated by the most liquid measure, M1 money supply. 

Yes, this exposes the artificiality of a so-called "restrictive" or "tightening" regime.

Needless to say, this process will only foster more economic imbalances, which will manifest through the enlarged “twin deficits.”

Economic maladjustments will become evident in the growing mismatch between demand and supply, as well as between savings and investment (record savings-investment gap), leading to increased fragility in the banking system’s balance sheet. 

This, in turn, will prompt more easing policies from the BSP and accelerated interventions and liquidity injections from the tandem of financial institutions (led by banks) and the BSP. 

We should expect the BSP to expand and extend its relief measures to the banking system in an effort to buy time.

Or, the BSP’s strategy to address an escalating debt problem is to facilitate accelerated debt absorption. Amazing! 

As such, we should expect a third wave of inflation, in the fullness of time, which will exacerbate the leveraging of the economic system and worsen the current predicament. 

The political path dependency is driven primarily by perceived "free lunches" (or throwing money into the system). 

The promised bull market will not be in Philippine assets but in debt, leveraging, and its attendant risks. 

So, despite the Philippine peso floating along with its regional peers, benefiting from the perceived "Powell Pivot," the USD/PHP exchange rate should eventually reflect the developing economic and financial strains. 

Until a critical disorder surfaces, a reversal in this political direction is unlikely.

Eventually, the treasury curve will indicate when this reversal might occur. 

The point is that even when distorted by interventions, markets are reliable indicators of future events. 

___

References 

Prudent Investor, The Philippines' July 4.4% CPI: Stagflation Remains a Primary Political, Economic, and Financial Risk August 12, 2024

Prudent Investor, Philippine Government’s July Deficit "Narrowed" from Changes in VAT Reporting Schedule, Raised USD 2.5 Billion Plus $500 Million Climate Financing September 1, 2024

 

Philippines' Q2 GDP Growth of 6.3%: Unpacking the "Marcos-nomics" Stimulus, June 2024 Philippine Employment Rates—A Statistical Pump

 

Measurement problems abound. The housing component, frequently constituting a quarter of inflation indices, often uses the owners’ equivalent rent, which is highly subjective, with a small change in weighting—such as for single-family homes—affecting the outcome. There are multiple measures—consumer price index, producer price index, GDP price deflator— that produce different, often irreconcilable, results. Data-dependent central bankers can fit the statistics to policy—Satyajit Das 

In this issue:

Philippines' Q2 GDP Growth of 6.3%: Unpacking the "Marcos-nomics" Stimulus, June 2024 Philippine Employment Rates—A Statistical Pump

I. June 2024 Philippine Employment Rates Hit Second to the Highest Level: A Statistical Pump

II. Q2 GDP Growth of 6.3%: Unpacking the "Marcos-nomics" Stimulus

III. The Unintended Consequences of Raising Government Salaries in the Philippines

IV. Q2 GDP: Consumers Struggle Under Marcos-nomics

V. The GDP is Debt: GDP Won’t Outgrow Total Debt or Systemic Leverage

VI. Q2 GDP Boosted by Devaluation Effect Amid Semiconductor Export Plunge and Stagnant Capital and Consumer Goods Imports

VII. The Money Illusion: Utility GDP Manifest ‘Undeflated’ Inflation; Real Estate GDP Reveals Worsening Signs of Malinvestments

VIII. The Disconnect between GDP Growth and the PSEi 30’s Performance

Philippines' Q2 GDP Growth of 6.3%: Unpacking the "Marcos-nomics" Stimulus, June 2024 Philippine Employment Rates—A Statistical Pump

"Marcos-nomics stimulus" powered Q2 GDP’s 6.3% as consumers struggled and as the government juiced up employment rate data

I. June 2024 Philippine Employment Rates Hit Second to the Highest Level: A Statistical Pump 

Businessworld, August 11, 2024: THE UNEMPLOYMENT RATE in June fell to 3.1%, the lowest in two decades, as hiring in the construction sector surged, the Philippine Statistics Authority (PSA) reported on Wednesday. Preliminary data from the Philippine Statistics Authority (PSA) showed the jobless rate slipped from 4.1% in May and 4.5% in June 2023. The June unemployment rate was the same as in December 2023. It was also the lowest jobless rate since April 2005, when the statistics agency revised its definition of unemployed to Filipinos aged 15 years and older without a job, available for work, and actively seeking one. This translated to 1.62 million unemployed Filipinos in June, down by 486,000 from 2.11 million in May. Year on year, unemployment went down by 707,000 from 2.33 million in June 2023. 

Beyond such sanguine statistics lies the issue of how this record number of employment rates was achieved. 

Essentially, who has been investing?

Figure 1

The Philippines has a low savings rate (even when calculated based on inflated GDP statistics), foreign direct investments (FDIs) remain subdued (despite Php 4 trillion promises of investment from geopolitical allies of the administration), and the distribution in the growth of the Universal Commercial (UC) bank credit expansion remains heavily skewed toward consumers and the real estate sector. (Figure 1)

The next question is: who has been hiring?

Figure 2

The June data record employment data reveals that the primary source of hiring has been the construction sector: quarter-on-quarter (1.2 million), month-on-month (680,000), and year-to-date (556,000). This massive job expansion largely stems from government-related projects, as confirmed by the industry’s boost to the Q2 GDP. (Figure 2, lowest graph)

The second-lowest unemployment rate was supported by a jump in labor participation rates. (Figure 2, topmost chart)

On a month-on-month and quarterly basis, the agricultural sector represented second-largest employers. Despite staggering losses due to weather-related challenges (Typhoon Carina estimated at Php 3.04 billion and El Niño’s Php 9.5 billion) and structural issues from inflation and other industry imbalances (e.g., entrenched protectionism), the agricultural sector added 571,000 jobs month-on-month and 497,000 jobs quarter-on-quarter. (Figure 2 middle window)

Ironically, according to the Philippine Statistics Authority (PSA), agricultural volume reportedly plunged by 13% in Q2.

Government employment data suggest that agricultural investors appear to be immune to profit and loss conditions, as evidenced by the hiring spree despite ongoing losses and stagnation.

In reality, the only entity not subject to profit and loss is the government, whose existence depends on forced transfers from the public.

The trade industry was the third-largest employer month-on-month in June. Given the lackluster performance of consumers, who have become heavily dependent on credit, it is likely that we should see a reversal soon.

The PSA’s labor survey data represent one of the 31 data sources used for GDP calculation. The Consumer Price Index (CPI) and GDP are highly sensitive political-economic data, which means they are prone to reflecting the agenda of their creators rather than providing unbiased and objective estimates. 

Let us hear it from the horse’s mouth (bold added): 

CPI allows individuals, businesses, and policymakers to understand inflation trends, make economic decisions, and adjust financial plans accordingly. The CPI is also used to adjust other economic series for price changes. For example, CPI components are used as deflators for most personal consumption expenditures in the calculation of the gross domestic product.  Moreover, it serves as a basis to adjust the wages in labor management contracts, as well as pensions and retirement benefits. Increases in wages through collective bargaining agreements use the CPI as one of their bases. (PSA, FAQ on CPI) 

The System of National Accounts (SNA) helps economists to measure the level of economic development and the rate of economic growth, the change in consumption, saving, consumption, investment, debt and wealth of the economy. From the data of SNA, economists can either forecast the future growth of the economy or study impacts on the economy and the institutional sectors of identified government policies and programs. (PSA, FAQ on CPI)

Recent data suggests that authorities have inflated employment figures to boost the GDP. 

II. Q2 GDP Growth of 6.3%: Unpacking the "Marcos-nomics" Stimulus 

In a nutshell, is the BSP concerned about how the gloomy views of consumers and businesses may translate into weaker GDP growth? (Prudent Investor, June 2024) 

It is not helpful when the establishment confuses the GDP with the overall economy, for the simple reason that the GDP has been skewed to reflect the growth of the government and the elites—the "trickle-down syndrome." (Prudent Investor, July 2024)

So, didn’t we get it right? 

While publicly unstated by authorities, the Q2 GDP growth of 6.3% represented the "Marcos-nomics" stimulus, which was anchored by near-record historic spending in Q2.

Figure 3

First, despite the cheerleading by the establishment and mainstream media, the Q2 2024 GDP remained below the exponential trend line of pre-pandemic nominal and real GDP. (Figure 3, topmost image)

Second, Q2 GDP was, in essence, another story of "Marcos-nomics ": government spending surged by 14.8% (nominal) and 10.7% (real), with government GDP posting a 16.8% share, marking its fourth highest level in the national accounts. (Figure 3, second to the highest window)

Once more, Q2 GDP validated our analysis and forecasts.

Third, Government GDP understated the public sector’s contribution to national GDP. Construction GDP was chiefly responsible for the 9.5% and 11.5% growth spikes in gross fixed capital and gross capital formation, accounting for 71.1% and 71.25% of the latter, respectively. (Figure 3, second to the lowest graph)

Importantly, real Construction GDP also represented 19.4% of the national GDP—an all-time high! 

As a side note, the surge in jobs in this sector most likely relates to government-related construction projects or contractors. 

Combined with government spending, direct government expenditures accounted for 27.4% of the Q2 2024 national accounts—the second highest ever! (Figure 3, lowest image)

Of course, this data exclusively represents direct expenditures.

The private sector’s direct contribution to government political projects (e.g., PPPs), as well as the direct and indirect supply and demand chains of these entities and those associated with the bureaucracy, are not included.

Briefly, the government’s direct and indirect contributions to the economy may easily account for about two quarters or approximately 40% of GDP.

So, while the government promotes partial economic liberalization to the public (benefiting the elites), it has been centralizing the economy through the administrative and bureaucratic state, the welfare state, and the warfare state.

The government doles out crumbs of liberalization while fortifying its political stranglehold on the economy.

Domestic wars (against vices such as drugs and POGOs, as well as inflation and poverty) and the promotion of nationalism to expand the warfare state has led to increased socialism or neo-socialism (fascism/cronyism). 

The essence of so-called war prosperity; it enriches some by what it takes from others. It is not rising wealth but a shifting of wealth and income. (Mises 1919) 

This shifting of income is most evident in the erosion of consumer spending. 

III. The Unintended Consequences of Raising Government Salaries in the Philippines 

As an aside, the political leadership has announced that it will begin increasing salaries for government bureaucrats in three tranches. 

Beyond the overall impact of adding to the record fiscal deficit, if government pay levels rise above those in the market economy, it could attract more individuals into the bureaucracy at the expense of the private sector. The rising cost of employment would exacerbate the crowding-out effect on the private sector. 

Since the government does not generate wealth on its own but instead extracts resources from the private sector through direct and indirect taxes, any increase in household spending by bureaucrats is likely to be offset by a decrease in spending by the private sector.

Moreover, this situation could lead to greater politicization of the hiring process, entrenching corruption, favoritism, and nepotism.

Jobs may increasingly be awarded to the highest bidders, friends, personal networks, or as payoffs for political favors. There will likely be more "ghost employees."

Consequently, the motivation of those in power is to increase economic interventions by introducing more laws, funded by the continuing expansion of the government’s budget, which should deepen the centralization process through the expansion of the administrative state. 

Figure 4 

According to the Civil Service Commission, the number of government employees in the new administration vaulted in 2023.  Consider how rising salaries in 2024 might lead to further increases in government jobs. (Figure 4, highest diagram) 

IV. Q2 GDP: Consumers Struggle Under Marcos-nomics 

Circling back to consumer spending: 

Although real consumer spending grew at the same rate of 4.6% in Q1 and Q2, the share of real consumer GDP plummeted from 74.4% to 67.8% as the share of government spending spiked. (Figure 4, second to the highest pane)

This trend is not an anomaly; such an antipodal path has emerged since the advent of the new millennium. This divergence accelerated in 2016 and intensified further during the pandemic recession.

Moreover, since peaking in Q1 2022, the downtrend in consumer spending growth continued into 2024, even as trade and retail GDP marginally outperformed at 6.6% in Q1 and 5.8% in Q2. (Figure 4, second to the lowest chart)

They failed to recognize that BSP policies—characterized by liquidity injections and bank credit expansion rather than productivity growth—were the primary drivers of this trend.

In other words, a large segment of retail entrepreneurs has clearly misread signals indicating that the recent bout of "revenge" spending is "sustainable."

Consequently, the rising vacancies in commercial, office, and residential properties translate to mounting losses and rising credit delinquencies that have yet to surface in bank data.

The poor top-line performance of several PSE-listed firms, which have reported their Q2 2024 results, underscores this issue.

Furthermore, consumer spending per capita continues to erode, ironically, despite record-high employment rates.  More evidence of inflated employment rates? (Figure 4, lowest graph)

V. The GDP is Debt: GDP Won’t Outgrow Total Debt or Systemic Leverage

By the same token, rising leverage has barely added to consumer spending.

UC bank lending to consumers grew by 25.01% to a record Php 1.4 trillion (excluding real estate loans) last June, marking its sixth consecutive quarter of over 25+% growth. In contrast, nominal consumer spending GDP grew by 4.6% in the first half of the year. This translates to Php 5 borrowed for every Php 1 of consumer GDP produced!

Incredible.

Figure 5

In the same vein, historic levels of systemic leverage (public debt plus UC bank credit) have barely supported growth in consumer spending per capita. (Figure 5, topmost image)

The aggregate UC Bank credit plus public debt in June amounted to an unprecedented Php 27.23 trillion, representing 108% of the annualized 2024 GDP!

Authorities are engaged in peddling smoke and mirrors, or advocating the GDP myth, when they claim that the GDP growth rate will outgrow public debt.

Fundamentally, a significant portion of GDP is derived from debt-financed public spending, which means public debt is a crucial factor behind GDP.  So how can GDP outgrow debt when deficit financing—the current driver—is based on debt? 

Secondly, similar to the period from 2009 to 2018, when slower public spending reduced the public debt-to-GDP ratio, banking debt to GDP took over. Banking credit expansion to the private sector became the principal source of finance for government revenue. (Figure 5, second to the highest diagram) 

Debt doesn’t melt away; it is juggled! 

In summary, under today’s de facto fiat money system, GDP is essentially debt. 

Today, we are now witnessing the twin engines of debt operating at full throttle. 

VI. Q2 GDP Boosted by Devaluation Effect Amid Semiconductor Export Plunge and Stagnant Capital and Consumer Goods Imports 

The devaluation effect or stronger US dollar FX via a weaker peso also magnified the contributions of external trade to GDP. 

Yet, the 29.5% plunge in semiconductor exports underscores the fragile state of local producers. Real manufacturing GDP increased by 3.6% (slower than the 4.4% growth in Q1), even as UC bank credit growth to the sector rose by 8.94% (down from 10.11% in Q1). (Figure 5, second to the lowest window) 

Stagnant nominal imports of capital and consumer goods in June further reinforce the lethargy of the private sector. (Figure 5, lowest chart) 

In addition to the slowing retail GDP, other sectors in the industry show signs of weakness.

Figure 6

The previously smoldering GDP of the Accommodation and Food Services sectors has dramatically slowed to their lowest growth levels since Q1 2022. Accommodation GDP fell from 16.1% to 12.9% in Q2, while Food Services GDP dropped from 11.8% to 9.4%. (Figure 6, topmost chart)

In seeming confirmation, air transport Cebu Pacific's Q2 2024 revenue growth of 15.3% pulled its H1 2024 growth lower to 18.1%. Meanwhile, PAL's Q2 2024 revenues contracted by 0.3%, which also weighed on its 1H 2024 revenue growth, reducing it to 3.97%.

Still, the transport GDP surged from 5.4% in Q1 to 14.8% in Q2. Air transport GDP spiked 22%.

VII. The Money Illusion: Utility GDP Manifest ‘Undeflated’ Inflation; Real Estate GDP Reveals Worsening Signs of Malinvestments 

Furthermore, while the Utilities GDP (electricity, steam, water, and waste management) outperformed in Q2 2024, rising from 4.3% in Q1 to 6.1%, its real growth (despite being netted out by the deflator) reflects the oscillations of the CPI. (Figure 6, middle image)

This highlights the "money illusion"—GDP attributed to growth when, in fact, it reflects changes in spending caused by price fluctuations.

Elevated inflation, rising interest rates, and increasing leverage and non-productive economic activities have severely constrained consumer spending.

Lastly, the supply side segment of the Real Estate (RE) sector via its GDP surged from 4.5% in Q1 to 7.2% in Q2 2024.

The industry's GDP has been backed by a surge in loan growth.

UC bank lending to the RE sector’s supply side expanded by 12.34%, marking growth rates above 10% for the eighth consecutive month.

Interestingly, despite the sector’s strong Q2 GDP performance, its value-added contribution to national accounts continues to dwindle, with its share of the total falling from 5.6% to 5.4% in Q2 2024, reinforcing its downtrend. (Figure 6, lowest graph)

On the other hand, the share of bank lending to the sector continues to rebound after an interim low in Q3 2023. 

That is, more borrowing results in lesser and lesser value-added contributions or diminishing returns, which are signs of escalating malinvestments. 

VIII. The Disconnect between GDP Growth and the PSEi 30’s Performance

Anyhow, the establishment and social media seem desperate to see the PSEi 30 rise, attributing any good news to it.

For instance, some claim that Friday’s rebound was caused by a "stronger economy. " Baloney. 

On the contrary, this reflects the politicization of the PSEi 30 through attribution bias: if the index falls, external forces are blamed; but when it rises, credit is claimed for any internal factor, with indirect allusions to politics.

Figure 7

Of course, cheerleaders—who don’t declare their interests—evade the details. They fail to mention the engineered pumps. (Figure 7, topmost visuals) 

Friday’s syndicated rescue operations, which centered on the Sy Group of companies (comprising 32.4% of the PSEi 30 as of August 10th), erased the week’s losses and delivered a 0.64% weekly return on mediocre volume. 

Yet, why hasn’t GDP been boosting the PSE? 

First, GDP is not the economy.  While it attempts to measure the complex nature of millions of moving parts operating spontaneously—supposedly reflecting the economy—it cannot do so effectively. 

This is because one cannot average spending on rice with subscriptions for software. Individual utilities are not only subjective but also change frequently. I may want a burger for one meal but spaghetti for the next, depending on my means and willingness to pay the offered price. 

Second, the distribution of costs and gains is uneven. 

Record government spending benefits politicians, the bureaucracy, and their cronies, while small and medium enterprises (SMEs), which can hardly access formal credit, barely benefit from such political activities.  Instead, the costs are borne by average citizens. 

In a corporatist or neo-fascist state, benefits are concentrated while costs are diffused, resulting in privatized gains and socialized losses. 

Third, despite the myriad regulations designed to curtail and control it, market economies operate on the division of labor and division of knowledge. Unfortunately, specialization, knowledge, and entrepreneurial skills cannot be averaged. 

Fourth, statistics are historical accounts derived from selective assumptions that incorporate specific inputs and calculations. They do not encompass all the causal factors that lead to multifarious and intertemporal outcomes. 

Fifth and finally, the PSE-GDP data indicate that there is confusion in associating a high GDP with the performance of the PSEi 30, which is currently in a bear market. (Figure 7, middle window) 

The GDP trendline has failed to revert to its former trajectory, which coincides with the PSEi 30’s bear market. (Figure 7, lowest chart) 

Given its structural trickle-down political-economic framework, which is entirely dependent on debt, it also bears substantial balance sheet risk. 

The consensus overlooked the last and most critical aspect of the economy. 

Fifteen minutes of glory doesn’t a bull market make. 

____

References: 

Philippine Statistics Authority, Frequently Asked Questions, Consumer Price Index, psa.org.ph 

Philippine Statistics Authority, Frequently Asked Questions, Philippine System of National Accounts (PSNA), psa.org.ph 

Prudent Investor, Could the Philippine Government Implement a 'Marcosnomics' Stimulus Blending BSP Rate Cuts and Accelerated Deficit Spending? June 30, 2024 

Prudent Investor, Marcos-nomics stimulus: Yields of the Philippine Treasury Curve Plunged, The Turbocharging of Pre-Election Liquidity Growth July 14, 2024 

Ludwig von Mises, Nation, State, and Economy, 1919 p.190, Mises.org