Q2–1H Debt-Fueled PSEi 30 Performance Disconnects from GDP—What Could Go Wrong

A lack of transparency results in distrust and a deep sense of insecurity — Dalai Lama 

In this issue

Q2–1H Debt-Fueled PSEi 30 Performance Disconnects from GDP—What Could Go Wrong

I. PSEi 30 Q2 2025: The Illusion of Resilience

IA. Q2 GDP at 5.5%: Headline Growth vs. Corporate Stagnation

IB. Structural Downtrend and Policy Transmission Breakdown

IC. Real Value Output in Decline, Political Optics and GDP Credibility

ID. Meralco’s Electricity Consumption Story: A Broken Proxy

II. Real Estate: The Recovery That Wasn’t

IIA. Overton Window vs. Market Reality

IIB. Property Developer Falling Revenues, Debt Surge and Liquidity Strain

IIC. Downstream Demand Weakness: Home Improvement & Construction Retail

III. Retail and Food Services: Mixed Signals

IIIA. Retail: Consumer Strain Amid Policy Sweet Spot

IIIB. Divergence Between Store Expansion and Organic Demand, Retail Growth vs. GDP Trends

IIIC. Food Services: Jollibee’s Dominance and Sector’s Growth Deceleration

IV. Banking Revenues and Income: A Stalling Engine

IVA. Banking Sector: Credit Surge, Revenue Stall

V. The PSEi 30 Net Income Story

VA. Earnings Breakdown: SMC’s Income Dominance, Accounting Prestidigitation?

VB. SMC’s Financial Engineering? Escalating Systemic Risk

VI. Debt and Liquidity: The Structural Bind

VIA. Mounting Liquidity Stress: Soaring Debt and The Deepening Leverage Trap

VIB. Transparency Concerns, Desperate Calls for Easing, Cash Reserves Under Pressure

VII. Conclusion: The Illusion of Resilience: As the Liquidity Tide Recedes, Who’s Swimming Naked? 

____

Q2–1H Debt-Fueled PSEi 30 Performance Disconnects from GDP—What Could Go Wrong 

Beneath headline growth lies a fragile mix of policy stimulus, rising leverage, and mounting stagnation—masking systemic fragility. 

I. PSEi 30 Q2 2025: The Illusion of Resilience 

Nota Bene:

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

Chart Notes:

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

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

IA. Q2 GDP at 5.5%: Headline Growth vs. Corporate Stagnation

Q2 GDP at 5.5%?   

On paper, that should have translated into strong corporate earnings—especially when juxtaposed with the financial pulse of the PSEi 30. 

Yet that headline growth masks a deeper dissonance: These firms, positioned as frontline beneficiaries of BSP’s easing cycle and historic deficit spending, should have reflected the policy tailwinds.

Figure 1

Instead, the disconnect is glaring: while nominal GDP surged 7.2% in Q2 and 7.4% in H1, aggregate revenues of the PSEi 30 contracted by 0.3% in Q2 and barely budged at 1.7% for the first half. (Figure 1, upper graph) 

IB. Structural Downtrend and Policy Transmission Breakdown 

More troubling, this isn’t a one-off anomaly. 

2025’s performance merely extends a structural downtrend that peaked in 2022—raising uncomfortable questions about transmission mechanisms, institutional fragility, and the real beneficiaries of expansionary policy. 

Consider this: Universal bank credit hit a historic high in June 2025, with 12.63% growth, the fastest pace since 2022. Yet PSEi 30 revenue growth in H1 limped to just +1.7%. The juxtaposition is telling. (Figure 1, lower window) 

Rather than fueling productive consumption or corporate expansion, credit appears channeled into asset churn and balance sheet patchwork—rolling debt, patching liquidity gaps, gaming duration mismatches. It’s a kinetic mirage, where velocity substitutes for vitality—hallmarks of overleveraging and diminishing returns. 

The very tools meant to stimulate growth now signal policy transmission failure, where liquidity flows but impact stalls. 

IC. Real Value Output in Decline, Political Optics and GDP Credibility 

Worst still, when adjusted using the same deflators applied to GDP, the PSEi 30’s real output doesn’t just stagnate—it slips into quasi-recession. Both Q2 and H1 figures turn negative, ≈ -2% and -.4%, exposing a structural rot beneath the nominal gloss. (Note 1)

Figure 2 

And this isn’t a statistical fluke. 

A full third of the index—10 out of 30 firms—posted revenue contractions, led by holding firms San Miguel, Alliance Global, and Aboitiz Equity. These aren’t fringe players—they’re positional market leaders. (Figure 2, upper table) 

As a side note, AGI’s revenue decline was partly driven by the deconsolidation of Golden Arches Development Corp, following its reclassification as an associate in March 2025 (Note 2) 

The gap is too wide, too persistent a trend, to be dismissed as cyclical noise. 

Was the PSEi 30 shortfall simply papered over by government spending, with a boost from external trade? 

Or was GDP itself inflated for political ends—to justify lower interest rates, defend the proposed Php 6.793 trillion 2026 budget (+7.4% YoY), and tighten the administration’s grip on power? 

Most likely, the truth lies in some combination of both. 

ID. Meralco’s Electricity Consumption Story: A Broken Proxy 

That’s not all. 

Meralco’s electricity sales volume contracted −0.33% YoY in Q2, dragging H1 growth down to a mere +0.51%. This isn’t just a soft patch—it’s historic: 

• First Q2 contraction since Q1 2021,
• First negative H1 since 2020, —both periods marked by pandemic-induced recession. 

More tellingly, Meralco’s quarterly GWh chart—once a reliable proxy for real GDP—has broken correlation. The divergence, which began in Q1 2024, has now widened into a chasm. (Figure 2, lower chart) 

To compound this, peso electricity peso sales shrank by 1.74% in Q2, and Meralco’s topline declines—both in pesos and GWh—dovetailed with the 8% sales slump in aircon market leader Concepcion Industries Corporation, as we discussed in an earlier post. (see references) 

When electricity consumption decouples from GDP, it raises uncomfortable questions: 

• Is real consumption being overstated? 
• Are headline figures engineered to justify policy optics—lower rates, ballooning budgets, and political consolidation? 

The numbers suggest more than statistical noise. They hint at a manufactured narrative, where growth is declared, but not felt. 

II. Real Estate: The Recovery That Wasn’t 

IIA. Overton Window vs. Market Reality 

There’s more. The public has recently been bombarded with official-consensus messaging about a supposed real estate ‘recovery.’ 

 The BSP even revised its property benchmark to show consistently rising prices—curiously, at a time of record vacancies. (see references) By that logic, the laws of supply and demand no longer apply. 

To reinforce the recovery echo chamber, authorities published modest Q2 and H1 NGDP/RGDP figures of 5.7% and 5.4%, respectively. 

IIB. Property Developer Falling Revenues, Debt Surge and Liquidity Strain 

Figure 3

Yet the hard numbers tell another story: stagnation gripped the top 5 publicly listed property developers—SMPH, ALI, MEG, RLC, and VLL—whose aggregate Q2 revenues grew by a paltry 1.23% YoY. (Figure 3 topmost image)

Adjusted for GDP deflators, that’s a real contraction. In effect, published rent and real estate sales may be teetering on the brink of recession.

The relevance is clear: these five developers accounted for nearly 30% of the sector’s Q2 GDP, meaning their results are a critical proxy for actual conditions—assuming their disclosures are accurate.

Yet, if there’s one metric that’s consistently rising, it’s debt.

Published liabilities surged 5.5% or Php 53.924 billion, reaching a record Php 1.032 trillion in Q2. Meanwhile, cash reserves plunged to their lowest level since 2019. (Figure 3, middle chart)

And yet, net income rose 11.15% to Php 35.4 billion—a figure that invites scrutiny, given flat revenues, rising leverage, and tightening liquidity.

In reality, developers appear forced to draw down cash to sustain operations and patch liquidity gaps, a fragile foundation to prop up the GDP consensus.

IIC. Downstream Demand Weakness: Home Improvement & Construction Retail

Worse, the sector’s downstream segment remains mired in doldrums.

Sales of publicly listed market leaders in home improvement and construction supplies—Wilcon and AllHome—fell -1.95% and -22.1% in Q2, respectively. Both chains have been struggling since Q2 2023, but the latest data are striking: despite no store expansion, AllHome reported a -28% collapse in same-store sales, while Wilcon’s growth lagged despite opening new outlets in 2024–2025, underscoring weak organic demand and the record vacancies. (Figure 3, lowest visual)

Strip away the official spin, and the underlying pattern emerges: insufficient revenues, surging debt, and shrinking liquidity. Overlay this with record-high employment statistics, historic credit expansion and fiscal stimulus—what happens when these falters? 

Consumers are already struggling to sustain retail and property demand. Yet, embracing the ‘build-and-they-will-come’ dogma, developers continue to expand supply, worsening the malinvestment cycle: supply gluts, strained revenues, debt build-up, and thinning cash buffers—a crucible for a future real estate debt crisis. 

III. Retail and Food Services: Mixed Signals 

IIIA. Retail: Consumer Strain Amid Policy Sweet Spot 

It’s not all bad news for consumers. 

Some segments gained traction from the “sweet spot” of easy money and fiscal stimulus—manifested in record bank credit and near all-time high employment rates. 

Figure 4

The most notable beneficiaries were non-construction retail chains, where expanded selling space (malls, outlets, stores) lifted revenues. The combined sales of the six listed majors—SM, Puregold, Robinsons Retail, Philippine Seven, SSI, and Metro Retail—rose 8.6% in Q2, their strongest showing since Q2 2023. (Figure 4, topmost graph) 

Still, signals remain mixed. In Q2, retail NGDP slipped to its lowest level since Q1 2021, while real consumer GDP bounced to 5.5%, its highest since Q1 2023. 

Company results reflected this divergence:

• SM: +8.9% YoY (best since Q4 2023)
• PGOLD: +12.3%
• RRHI: +5.9%
• SEVN: +8.6%
• SSI: −1.6%
• MRSGI: +6.6%

IIIB. Divergence Between Store Expansion and Organic Demand, Retail Growth vs. GDP Trends 

Interestingly, while Philippine Seven [PSE: SEVN] continues to boost headline growth via new store openings, same-store sales have operated in negative territory from Q4 2024 to Q2 2025. This divergence reveals how money at the fringes conceals internal vulnerabilities—weakening demand paired with oversupply. Once the benefit of new outlets erodes, excess capacity will magnify sales pressure, likely translating into eventual losses. (Figure 4, middle pane) 

Even as listed non-construction retail firms outpaced retail NGDP (6.8%) and RGDP (6.15%), their performance only partially resonates with the real GDP dynamic. 

Yet, the embedded trend across retail sales, consumer GDP, and retail NGDP remains conspicuously downward. 

IIIC. Food Services: Jollibee’s Dominance and Sector’s Growth Deceleration 

The food service industry echoes this entropy. Jollibee’s domestic sales grew 10.13% in Q2, pulling aggregate revenue growth of the four listed food chains—JFC, PIZZA, MAXS, FRUIT—to 9.6%, still below the 10.7% NGDP and 8.34% RGDP for the sector. The growth trajectory, led by JFC, continues to decelerate. (Figure 4, lowest diagram) 

Notably, JFC accounted for 86% of aggregate listed food service sales, yet only 54% of Q2 Food Services GDP—a testament to its PACMAN strategy of horizontal expansion—an approach I first described in 2019—enabled by easy-money leverage in its pursuit of market dominance (see references) 

Unfortunately, visibility on the sector is now diminished. Since AGI reclassified Golden Arches (McDonald’s Philippines) as a non-core segment, its performance is no longer disclosed. For reference, McDonald’s sales plunged 11.5% in Q1 2025. 

Losing this datapoint is regrettable, given McDonald’s is Jollibee’s closest competitor and a critical indicator of industry health. 

IV. Banking Revenues and Income: A Stalling Engine 

IVA. Banking Sector: Credit Surge, Revenue Stall 

Finally, despite all-time high loan volumes, bank revenues slowed sharply in Q2—an unexpected deceleration given the credit surge. The top three PSEi 30 banks—BDO, BPI, and MBT—posted a modest 7.02% revenue increase, dragging 1H growth down to 7.99%. For context, Q1 2025 revenues rose by 9%, while Q2 2024 saw a robust 21.8% jump. Full-year 2024 growth stood at 20.5%, making Q2 2025’s performance less than half of the prior year’s pace. 

We dissected the worsening conditions of the banking sector in depth last week (see reference section) 

V. The PSEi 30 Net Income Story 

VA. Earnings Breakdown: SMC’s Income Dominance, Accounting Prestidigitation? 

For the PSEi 30, if revenue stagnation already stands out, net income tells a similar story.

Figure 5 

Q2 2025 net income rose by 11.5% (Php 28.7 billion), pulling down 1H income growth to 13.8% (Php 68.6 billion). While Q2 gross net income was the highest since 2020, its marginal increase and subdued growth rates marked the second slowest since 2021. (Figure 5, upper chart) 

The devil, of course, lies in the details. 

The biggest contributor to the PSEi 30’s net income growth in Q2 and 1H 2025 was San Miguel Corp. Its net increase of Php 18.7 billion in Q2 and Php 53.19 billion in H1 accounted for a staggering 65.2% and 77.54% of the total PSEi 30 net income growth, respectively—despite comprising just 8.5% and 11.8% of the index’s gross net income. (Figure 5, lower table) 

In effect, SMC was not merely a contributor but the primary engine behind the index’s earnings rebound.

Yet this dominance raises more questions than it answers.

Despite a sharp revenue slowdown and only marginal improvements in profit margins—still below pre-pandemic levels—SMC reported a substantial jump in cash holdings and a deceleration in debt accumulation. But this apparent financial strength stems not from operational resilience, but from non-core gains: fair value revaluations, FX translation effects, and dividends from associates.

The result is a balance sheet that appears healthier than it is, with cash levels inflated by accounting maneuvers rather than organic surplus.

VB. SMC’s Financial Engineering? Escalating Systemic Risk

Beneath the surface, SMC’s debt dynamics resemble quasi-Ponzi finance—borrowing Php 681 billion to repay Php 727 billion in 1H 2025, while plugging the gap with preferred share issuance and asset monetization. The latter includes the deconsolidation and valuation uplift of its residual stakes in the Ilijan power facility and Excellent Energy Resources Inc. (EERI), as well as the $3.3 billion LNG deal with Meralco and AboitizPower in Batangas. Though framed as strategic partnerships, these transactions involved asset transfers that contributed heavily to the surge in reported profits.

The simulacrum of deleveraging—from Php 1.56 trillion in Q4 2024 to Php 1.506 trillion in Q2/1H 2025—appears to be a product of financial engineering, not structural improvement. This disconnect between reported profitability and underlying liquidity mechanics raises concerns about transparency and sustainability.

In a market where banks, corporates, and individuals hold significant exposure to SMC debt (estimated at 4.3% of June 2025’s total financial resources), the company’s accounting-driven cash buildup may signal escalating systemic fragility—a risk that the recent equity selloff seems to be pricing in ahead of the curve.

Stripped of SMC’s potentially inflated income, Q2 and H1 net income for the PSEi 30 would rank as the second-lowest and lowest since 2021, respectively—underscoring the fragility behind the headline performance.

At the same time, and with curious timing, SMC announced its intent to undertake large-scale flood control across Metro Manila and Laguna—"at no cost to the government or the Filipino people". Whether this reflects a genuine civic gesture or a strategic bid to accumulate political capital remains unclear. But the optics are unmistakable: as SMC’s earnings distort the index’s headline strength, it simultaneously positions itself as a public benefactor.

Yet, is this narrative groundwork for a future bailout, or a preemptive reframing of corporate rescue as national service?

VI. Debt and Liquidity: The Structural Bind

VIA. Mounting Liquidity Stress: Soaring Debt and The Deepening Leverage Trap 

Finally, let us move on to the PSEi 30’s liquidity metrics: debt and cash. 

If there’s one structurally entrenched dynamic in the PSEi 30, it’s borrowing.

Figure 6

Published short- and long-term debt of the non-financial PSEi 30 surged to an all-time high of Php 5.95 trillion in 1H 2025—up 7.66% year-on-year. (Figure 6, topmost chart) 

The net increase of Php 423 billion amounted to 74.7% of the gross net income and a staggering 617% of the YoY net income increase. 

Including the bills payable of the four PSEi 30 banks—Php 859.7 billion, excluding bonds—total leverage rises to Php 6.8 trillion—with net borrowing gains of Php 760.5 billion, overshadowing declared net income of Php 566.7 billion. 

In short, the PSEi 30 borrowed Php 1.34 to generate every Php 1 in profit—assuming SMC’s profits are genuine. 

And this borrowing binge wasn’t isolated. Among the 26 non-financial firms, 18 increased their debt in 1H 2025. 

On average, debt now accounts for 27% of assets—or total liabilities plus equity. 

SMC, once the poster child of corporate borrowing, ceded the title this period to Meralco, Ayala Corp, and Aboitiz Equity Ventures. (Figure 6, middle table) 

Notably, MER and AEV’s borrowing spree coincides with their asset transfer deals with SMC. Whether this reflects strategic alignment or a quiet effort to absorb or ‘share’ SMC’s financial burden to deflect public scrutiny—such optics suggest a coordinated dance. 

If true, good luck to them—financial kabuki always yields to economic gravity. 

VIB. Transparency Concerns, Desperate Calls for Easing, Cash Reserves Under Pressure 

The thing is, transparency remains a persistent concern, especially in periods of mounting financial stress or pre-crisis fragility. 

First, there’s no assurance that published debt figures reflect full exposure. Some firms may be masking liabilities through other liabilities (leases, trade payables) or off-balance sheet arrangements. 

Second, asset valuations underpinning declared balance sheets may be unreliable. Accounting ratios offer little comfort when market liquidity evaporates—see the 2023 U.S. bank crisis or China’s ongoing property implosion. 

Despite historic borrowing and declared profits, PSEi 30 cash reserves barely budged—up just 0.96% YoY, with a net increase of Php 14.07 billion following two years of retrenchment. Cash levels have been on a steady decline since their 2020 peak. We suspect that recent upticks in cash are not in spite of borrowing, but because of it. 

This growing debt-income-revenue mismatch explains the establishment’s increasingly desperate calls for “MOAR easing” and declarations of a real estate “recovery.” 

VII. Conclusion: The Illusion of Resilience: As the Liquidity Tide Recedes, Who’s Swimming Naked? 

The PSEi 30’s revenue stagnation belies the optics of headline GDP growth. Even in the supposed “sweet spot”—BSP easing, FX soft-peg subsidies, and record stimulus—consumer strain cuts across sectors.

Stimulus may persist, but its marginal impact is fading—manifesting the law of diminishing returns. The disconnect between policy effort and real economy traction is widening.

Q2 and H1 income growth seem to increasingly reflect on balance sheet theatrics driven more by financial engineering and accounting acrobatics than by operational reality.

When earnings are staged rather than earned, the gap between corporate performance and macro reality doesn’t just widen—it exposes a deepening structural mismatch. 

Deepening leverage also anchors the PSEi 30’s fundamentals. On both the demand and supply sides, debt props up activity while cash thins. The same fragility echoes through the banking system and money supply mechanics. 

This is not resilience—it’s choreography. And when liquidity recedes, the performance ends. 

As Buffett warned: "when the liquidity tide goes out, we’ll see who’s been swimming naked" We might be hosting a nudist festival. 

___ 

Notes: 

Note 1 While GDP measures value-added and corporate revenues reflect gross turnover, applying the same deflators provides a reasonable proxy for real comparison. 

Note 2: Alliance Global 17 Q August 18, 2025: Effective March 17, 2025, GADC was deconsolidated and ceased to be a business segment as it becomes an associate from that date, yet the Group’s ownership interest over GADC has not changed p.2 

References 

Prudent Investor Newsletter, Q1 2025 PSEi 30 Performance: Deepening Debt-Driven Gains Amid Slowing Economic Momentum, June 01, 2025 (Substack) 

Prudent Investor Newsletter, Concepcion Industries Cools Off—And So Might GDP and the PLUS-Bound PSEi 30 (or Not?) July 28, 2025 

Prudent Investor Newsletter, The Confidence Illusion: BSP’s Property Index Statistical Playbook to Reflate Property Bubble and Conceal Financial Fragility, July 13, 2025(Substack) 

Prudent Investor Newsletter, Jollibee’s Fantastic Paradigm Shift: From Consumer Value to Aggressive Debt-Financed Pacman Strategy March 3, 2019 

Prudent Investor Newsletter, Philippine Banks: June’s Financial Losses and Liquidity Strains Expose Late-Cycle Fragility, August 17, 2025 (Substack)

  

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

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

 

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

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

I. Q2 GDP: A Mirage of Momentum

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

III. Economic Wet Dreams, Statistical Kabuki and Confirmation Bias

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

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

VI. Jobs Boom, GDP Drag

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

VIII. Core vs Headline CPI: A Divergence Worth Watching

IX. Deflator Manipulation, GDP Inflation

X. Inflation-GDP Forecasting as Folklore

XI. The Official Narrative: A Celebration of Minor Gains

XII. The Real Driver: Government Spending, Not Households

XIII. The Consumer Illusion: Retail as a Misleading Proxy

XIV. Expenditure Breakdown: Only Government Spending Beat the Headline

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

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

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

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

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

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

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

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

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

I. Q2 GDP: A Mirage of Momentum 

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

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

Figure 1

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

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

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

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

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

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

III. Economic Wet Dreams, Statistical Kabuki and Confirmation Bias 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

VI. Jobs Boom, GDP Drag

Figure 2

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

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

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

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

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

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

Figure 3

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

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

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

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

VIII. Core vs Headline CPI: A Divergence Worth Watching

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

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

IX. Deflator Manipulation, GDP Inflation 

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

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

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

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

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

X. Inflation-GDP Forecasting as Folklore 

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

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

XI. The Official Narrative: A Celebration of Minor Gains 

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

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

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

Figure 4

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

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

XII. The Real Driver: Government Spending, Not Households 

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

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

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

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

XIII. The Consumer Illusion: Retail as a Misleading Proxy

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

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

So much for the “strong consumer” thesis. 

XIV. Expenditure Breakdown: Only Government Spending Beat the Headline 

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

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

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

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

Figure 5

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

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

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

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

Proof? 

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

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

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

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

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

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

Figure 6 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Benchmark-ism strikes again!  

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

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

A 5.5% print reveals fragility more than resilience. 

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

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

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

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

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

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

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

Yet, who benefits from this GDP? 

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

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

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

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

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

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

Figure 7 

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

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

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

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

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

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

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

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