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—voilĂ —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
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 6That’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.