The Philippine Q3 2025 “4.0% GDP Shock” That Wasn’t

 

There is enormous inertia — a tyranny of the status quo — in private and especially governmental arrangements. Only a crisis — actual or perceived — produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around. That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes politically inevitable—Milton Friedman  

In this issue

The Philippine Q3 2025 “4.0% GDP Shock” That Wasn’t

I. Q3 GDP Shock: A Collapse Few Saw Coming; The Loose Cauldron of Policy Support

II. Why Then the Surprise?

III. The Echo Chamber: Forecasting as Optimism Theater

IV. Statistics ≠ Economics: The Public’s Misguided Faith

V. Ground Truth: SEVN as a Proxy — Retail Reality vs. GDP Fiction

VI. The Consumer Slump is Structural, Not Episodic; Hunger as a Better Predictor; CPI Is Not the Whole Story

VII. So What Happened to Q3 GDP?

VIII. Household Per Capita: The Downtrend

IX. The Real Q3 2025 GDP Story: Consumer Slowdown

X. Government Spending Didn’t Collapse — It Held Up Amid Scandal; Public Construction Implosion

XI. External Sector: Trump Tariffs’ Exports Front-Loaded, Imports Slowing

XII. Corruption Is the Symptom; Policy Induced Malinvestment Is the Disease

XIII. Increasing Influence of Public Spending in the Economy

XIV. Crowding Out, Malinvestment, and the Debt Time Bomb

XV. Statistical Mirage: Base Effects and the GDP Deflator

XVI. Testing Support: Fragility in the Data, Institutional Silence

XVII. Overstating GDP via Understating the CPI

XVIII. Real Estate as a Case Study: GDP vs. Corporate Reality

XIX. Calamities and GDP: Human Tragedy vs. Statistical Resilience

XX. Calamities as a Convenient Political Explanation and Bastiat’s Broken Window Fallacy

XXI. Expanding Marcos-nomics: State of Calamity as Fiscal Stimulus

XXII. More Easing? The Rate-Cut Expectations Game

XXIII. A Fiscal Shock in the Making, Black Swan Dynamics

XXIV. Conclusion: Crisis as the Only Reform 

The Philippine Q3 2025 “4.0% GDP Shock” That Wasn’t 

Behind the typhoon-and-scandal headlines lies the real story: a shocked consensus, overstated aggregates, expanded stimulus, and a political economy running on malinvestment.

I. Q3 GDP Shock: A Collapse Few Saw Coming; The Loose Cauldron of Policy Support 

The Philippine government announced that Q3 GDP growth slumped to a mere 4%, the slowest pace since the pandemic recession. This came as a ‘shock’ to mainstream forecasters, who had projected a modest deceleration—not a plunge. 

Statistics must never be viewed in isolation. This GDP print must be seen in context. Q3 unfolded amid a deepening BSP easing cycle—six rate cuts (with a seventh in October or Q4), two RRR reductions, and a doubling of deposit insurance coverage. 

This stimulus-driven environment was reinforced by all-time-high bank lending, particularly in consumer credit, even as employment—though slightly weaker—remained near full employment levels. 

In short, Q3 growth occurred under the most accommodative financial and fiscal conditions in years—a cauldron of policy backstops. 

II. Why Then the Surprise? 

Forecasting errors were not only widespread—they were flagrant. 

Reuters called the result “shocking,” citing a corruption scandal linked to infrastructure projects that hammered both consumer and investor confidence. The report noted that growth came in “well below the 5.2% forecast in a Reuters poll and significantly weaker than the 5.5% expansion in the previous quarter.” 

BusinessWorld’s survey of 18 economists yielded a median forecast of 5.3%.

Philstar’s poll of six economists projected 5.45%, barely below Q2’s 5.5%. 

A 50-bps drop was labeled a ‘slowdown’? Really? 

That’s not analysis—it’s narrative management. 

Why such a brazen forecasting error? 

III. The Echo Chamber: Forecasting as Optimism Theater 

The DBM chief claimed that Q4 growth would “normalize,” insisting that the 5.5–6.5% full-year target “remains attainable.” 

Implicit in that projection was a soft but stable Q3—a forecast that proved disastrously optimistic. 

This consensus blindness mirrors past failures: the Q1 2020 COVID shock and the 2022 inflation spike. 

This isn’t ideological—it’s institutional. Forecasts aren’t tools for analysis; they are marketing vehicles for official optimism. Economic statistics are not used to diagnose, but to promote and reassure. 

Hence the futility of “pin-the-tail-on-the-donkey” forecasting: a guessing game played on deeply flawed metrics. 

IV. Statistics ≠ Economics: The Public’s Misguided Faith 

Statistics is NOT economics. 

Despite repeated misses, the public continues to cling to mainstream forecasts. They fail to see the incentive mismatch—institutions seek fees, commissions, and access, while individuals seek returns. 

Agency problems, asymmetric information, and lack of skin in the game define this relationship—core realities that mainstream commentary refuses to admit. 

V. Ground Truth: SEVN as a Proxy — Retail Reality vs. GDP Fiction

Figure 1 

Take Philippine Seven Corp. [PSE: SEVN]. In Q3: 

• Revenue rose just 3.8% YoY, its weakest since Q1 2021.
• Same-store sales contracted 3.9%, the worst since the pandemic.
• Store count rose 8.6%, yet total sales fell—signaling demand erosion. 

This downtrend, persisting since 2022, mirrors the slowdown in real retail and household consumption GDP, which posted 5.1% and 4.09% in Q3, respectively. (Figure 1, topmost and middle windows) 

Yet the gap between SEVN’s data and official GDP implies potential overestimation in national accounts. 

If major retail chains show a sustained slowdown or outright contraction, then headline consumption growth of 4–5% either overstates economic reality—or implies that GDP should be even weaker than reported. 

These trend declines offer a structural lens into the economy’s underlying deterioration. 

VI. The Consumer Slump is Structural, Not Episodic; Hunger as a Better Predictor; CPI Is Not the Whole Story

The consumer slowdown did not emerge from the corruption scandal or recent natural calamities (earthquakes and typhoons)—it preceded both. The underlying weakness has long been visible to anyone looking beyond the official narrative. 

While economists missed the turn, sentiment data didn’t. 

The SWS hunger survey—a proxy for household stress—proved a far better leading indicator. Its late-September spike revealed deepening hardship among lower- and middle-income Filipinos—mirroring the Q3 GDP plunge. (Figure 1, lowest graph) 

Like SEVN’s revenue and the deceleration in consumption and retail GDP, hunger is not an anomaly—it’s a trend. One that has persisted since the pandemic and now appears to be accelerating.

Figure 2

With CPI steady at 1.4% for two consecutive quarters—assuming the number’s accuracy—the malaise clearly extends beyond price pressures. 

The hunger dilemma reflects deeper economic deterioration: slowing jobs, stagnant wages, weak investments, falling earnings, declining productivity, and eroding savings. (Figure 2, topmost image) 

This is the institutional blind spot—prioritizing political and commercial relationships over truth. 

VII. So What Happened to Q3 GDP? 

Aside from back-to-back typhoons, officials attributed the unexpected slowdown to concerns over the integrity of public spending and further erosion of investor sentiment. 

And it was not just investors. According to Philstar, the DEPDEV (Department of Economy, Planning, and Development) chief said consumer confidence has also been hit by the flood control probes, with many households postponing planned purchases. 

But unless there has been a call for nationwide civil disobedience (à la Gandhi or Etienne de La Boétie), why should people’s daily consumption habits suddenly be affected by politics? 

The reality is more complex. Universal commercial banks’ household loan portfolios surged 23.5% in Q3 2025—marking the 13th consecutive quarter of 20%+ growth. If households weren’t spending, what were they doing with interest-bearing loans? Investing? Speculating? Or simply refinancing old debt? (Figure 2, middle chart) 

VIII. Household Per Capita: The Downtrend 

Meanwhile, real household per capita consumption grew just 3.2%, its lowest since the BSP-sponsored recovery in Q2 2021. This wasn’t an anomaly—it reflected a downtrend in household spending growth since Q1 2022. (Figure 2, lowest visual) 

In short, the corruption scandal was not the root cause but an aggravating circumstance layered atop an existing structural slowdown. 

IX. The Real Q3 2025 GDP Story: Consumer Slowdown

Let us look at the real Q3 2025 expenditure trend, and how it compares with recent periods. 

Q3 2025 (4% GDP):

• Household spending: +4.1%
• Government spending: +5.8%
• Construction spending: –0.5%
• Gross capital formation: –2.8%
•  Exports: +7%
• Imports: +2.6%

Q2 2025 (5.5% GDP): 

• Household spending: +5.3%
•  Government spending: +8.7%
• Capital formation: +1.2%
• Construction: +0.9%
• Exports and imports: +4.7%, +3.5%

Q3 2024 (5.2% GDP): 

• Household spending: +5.2% 
• Government spending: +5%
• Capital formation: +12.8%
• Construction: +9%
• Exports and imports: –1.3%, +6.5%

X. Government Spending Didn’t Collapse — It Held Up Amid Scandal; Public Construction Implosion 

Despite the corruption scandal, government consumption remained positive and was even higher in Q3 2025 than in Q3 2024. This alone undermines the narrative that the GDP slump was simply "sentiment shock."

Figure 3

Government construction plummeted 26.6%, matching the pandemic lockdown era of Q3 2020. This single line item pulled construction GDP into a mild –0.5% decline. (Figure 3, topmost pane) 

But buried beneath the headline, private construction was strong:

• Private corporate construction: +14.4%
• Household construction: +13.3%

These robust figures cushioned the damage from the government crash.

Absent private-sector strength, construction GDP would have mirrored the government collapse. 

Government construction also contracted –8.2% in Q2, reflecting procurement restrictions during the midterm election ban. 

As we already noted last September: (bold original) 

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

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

The Q3 data has now validated this. 

A large network of sectors tied to public works absorbed the first-round impact—and that ‘shock’ bled into already stressed consumers. 

XI. External Sector: Trump Tariffs’ Exports Front-Loaded, Imports Slowing 

Exports rose +7% in Q3 2025, boosted by front-loading ahead of Trump tariffs. 

Imports slowed to +2.6%, the weakest pace in recent periods, reflecting consumer retrenchment. 

This divergence highlights how external momentum was artificially timed, while domestic demand faltered.

XII. Corruption Is the Symptom; Policy Induced Malinvestment Is the Disease

The controversial flood control scandal represents the visible tip of a much deeper corruption iceberg. It is not the anomaly—it is the artifact. 

Political power is, at its core, about monopoly. 

In the Philippines, political dynasties are merely its institutional symptom. The deeper question is: what incentives drive politicians to cling to power, and how do they sustain it? 

Public service often serves as a facade for the real intent: access to political-economic rents, impunity, and the machinery of patronage. Through electoral engineering—name recall, direct and indirect (policy-based) vote-buying, and bureaucratic capture—politicians commodify entitlement, turning public goods into tradable favors.

Dependency is weaponized or transformed into political capital, politicizing people’s basic needs to secure loyalty, votes, and tenure. 

Poverty becomes leverage. 

This erodes the civic ethic of self-reliance and responsibility, and it traps constituents—who participate out of a survival calculus—into legitimizing dynastic monopolies. 

This free-lunch electoral process, built on deepening dependence on ever-growing public funds, represents the social-democratic architecture of a political economy of control, centralization, and extraction—one that incentivizes corruption not as an aberration but as a structural outcome of concentrated power. 

XIII. Increasing Influence of Public Spending in the Economy 

Direct public spending reached 16.1% of 9M 2025 real GDP—the second highest on record after the 2021 lockdown recession.  (Figure 3, middle diagram) 

This figure excludes government construction outlays and the spending of private firms reliant on state contracts and agency revenues, such as PPPs, suppliers, outsourcing, etc. 

In this context, corruption is not merely a moral failure but a symptom of structural defects in the political-economic electoral process, reinforced by the misdirection of resources and finances, which signifies chronic systemic malinvestment. 

GDP metrics mask political decay, economic erosion, and institutional fragility. 

Yet even with statistical concealment, the entropy is visible. 

XIV. Crowding Out, Malinvestment, and the Debt Time Bomb 

The ever-rising share of public spending has coincided with a slowdown in GDP growth. Public outlays now prop up output, while pandemic-level deficits have shrunk the consumer share of GDP. (Figure 3, lowest graph) 

Crowding-out effects, combined with “build-and-they-will-come” malinvestments, have drained savings and forced greater reliance on leverage—weakening real consumption.

Figure 4 

Most alarming, nominal public debt rose Php 1.56 trillion YoY in September, equivalent to 126% of the Php 1.237 trillion increase in nominal GDP over the same period. 126%! (Figure 4, topmost visual) 

As a result, 2025 public debt-to-GDP surged to 65.11%—the highest since 2006. (Figure 4, middle graph) 

Needless to say, Corruption is what we see; malinvestment is what drives the crisis path. 

XV. Statistical Mirage: Base Effects and the GDP Deflator 

Yet, the “shocking” Q3 GDP overstates its actual rate. 

Because the headline GDP growth rate is derived from statistical base effects, almost no analyst examines the underlying price base, which is the most critical determinant of real GDP. The focus is always on the percentage change—never on the structural level from which the change is computed. 

For years, the consensus has touted the goal of “upper middle income status,” equating progress with high GDP numbers. 

But whatever outcome they anticipate, the PSA’s nominal and real GDP price base trends have consistently defied expectations. (Figure 4, lowest chart) 

The primary trend line was violated during the pandemic recession and replaced by a weaker secondary trend line. Statistically, this guarantees that base-effect growth will be slower than what the original trajectory implied. 

The economy is no longer expanding along its pre-pandemic path; it is merely oscillating below it. 

XVI. Testing Support: Fragility in the Data, Institutional Silence 

Recent GDP prints have repeatedly tested support levels. The risk is not an upside breakout but a downside violation—the path consistent with a recession.   

Q3 GDP brought both the nominal and real price base to the brink of its crucial support. A further slowdown could trigger its incursion. 

Yet you hear none of this discussed—despite all this coming straight from government data. 

The silence underscores a broader indictment: statistics are deployed as optimism theater, not as diagnostic tools. 

XVII. Overstating GDP via Understating the CPI 

And this brings us to a deeper issue that amplifies the problem. 

Real GDP is computed by dividing nominal GDP by the implicit GDP deflator. For the personal consumption component, the PSA uses CPI-based price indices to adjust nominal household spending.

Figure 5

The implicit price index is technically the GDP deflator. (Figure 5, topmost diagram) 

If CPI becomes distorted by widespread price interventions—such as MSRPs, the Php 20-rice rollout, or palay price floors—its measured inflation rate can diverge from actual market conditions. 

Any downward bias in CPI would mechanically lower the corresponding deflators used in the national accounts. 

A lower deflator raises the computed real GDP. 

Thus, even without access to PSA’s internal methodology, the basic statistical relationship still holds: systematic price suppression in CPI-tracked goods would tend to understate the deflator and, in turn, overstate real GDP. 

As noted in our August post: (bold & italics original) 

"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.  

XVIII. Real Estate as a Case Study: GDP vs. Corporate Reality 

The GDP headline may be overstating growth due to deviations in calculation assumptions or outright political agenda— what I call as "benchmark-ism." 

Consider the revenues of the Top 4 listed developers—SM Prime, Ayala Land, Megaworld, and Robinsons Land. 

Despite abundant bank credit flowing to both supply and demand sides, their aggregate revenues increased only 1.16% in Q3 2025, barely above Q2’s 1.1%. This mirrors the slowing consumer growth trend: since peaking in Q2 2021, revenue growth rates have been steadily declining, leading to the current stagnation. The slowdown also coincides with rising vacancies. Reported revenues may still be overstated, given that the industry faces slowing cash reserves alongside record debt levels. 

Meanwhile, official GDP prints show:

• Real estate nominal GDP: +6.8%
• Real estate real GDP: +4.7% 

Yet inflation-adjusted revenues for the Top 4 translate to zero growth—or contraction. 

Their revenues accounted for 26.4% of nominal real estate GDP in Q3 2025. Real estate’s share of national GDP was 6.2% nominal, 6% real. (Figure 5 middle image) 

This gap between corporate revenues and GDP aggregates suggests statistical inflation of output. 

This highlights a broader point: The industry’s CPI barely explains the wide divergence between revenues and GDP. And this is just one sector. 

Comparing listed company performance with GDP aggregates exposes the disconnect between macro statistics and micro realities, not just episodic shocks—a motif that recurs across retail, consumption, and sentiment indicators. 

Yet, natural calamities—especially typhoons—are often blamed, but their impact on national output is minimal—much like the weak revenue trends, the real slowdown lies deeper than headline statistics suggest. 

XIX. Calamities and GDP: Human Tragedy vs. Statistical Resilience

Despite public perception, the Philippine economy has been structurally resilient to typhoon disruptions—not because disasters are mild, but because GDP barely registers them. 

In Q3 2025, ten tropical cyclones passed through or enhanced the monsoon system, with the July cluster (Crising, Dante, Emong + Habagat) causing an estimated Php 21.3 billion in officially reported damages and the September cluster (Nando/Ragasa, Bualoi/Ompong + Habagat) adding another Php 1.9 billion in infrastructure and agricultural losses. 

The combined Php 23.1 billion destruction sounds enormous, but in macroeconomic terms it is equal to just 0.37% of quarterly nominal GDP. 

This pattern is consistent with past experience: Yolanda (Q4 2013, 5.4%), Odette (Q4 2021, 7.9%), Ompong (Q3 2018, 6.1%), Pablo (Q4 2012, 7.8%), and Glenda (Q3 2014, 5.9%) all inflicted large localized damage yet barely dented national output. (Figure 5, Table) 

The reason is structural: GDP is weighted toward services and urban economic activity, while disasters strike geographically narrow areas. Catastrophic in human terms, typhoons seldom materially affect national accounts. 

The Q3 2025 storms fit the same pattern: human tragedy, fiscal strain, and regional losses—but minimal macroeconomic imprint. Resilience in the data conceals suffering on the ground, because GDP measures transactions, not destroyed livelihoods. 

XX. Calamities as a Convenient Political Explanation and Bastiat’s Broken Window Fallacy 

Given this historical consistency, attributing the Q3 slowdown to typhoons is politically convenient but analytically weak. It reflects self-attribution bias—positive outcomes are claimed as accomplishments, negative ones pinned on exogenous forces. 

GDP simply does not respond to weather shocks of this scale. At most, calamities intensify pre-existing consumption weakness rather than create it. They add entropy to a deteriorating trend; they do not determine it. 

The same applies to earthquakes. The deadly July 1990 Luzon earthquake claimed over 1,600 lives and caused Php 10 billion in damage, yet Q3 1990 GDP posted +3.7% growth. The slowdown that followed led to a technical recession in Q2 (-1.1%) and Q3 1991 (-1.9%), driven more by political crisis (coup attempts, post-EDSA transition) and the US recession (July 1990–March 1991) than by the quake itself. 

Recovery spending from calamities gets factored into GDP, but as Frédéric Bastiat taught us, this is the broken window fallacy—a diversion of resources, not genuine growth. 

XXI. Expanding Marcos-nomics: State of Calamity as Fiscal Stimulus 

The administration has relied on this same narrative today. 

The cited calamities—Typhoon Tino and Uwan, plus the Cebu and Davao earthquakes—occurred in Q4 2025. These events contributed to entropic consumer conditions but did not create them. 

But their political and bureaucratic timing proved useful. 

Authorities tightened the national price freeze a day before the USD/PHP broke 59 (see reference discussion on the USDPHP breakout) 

Typhoon Tino, followed by Uwan, justified declaring a State of Nationwide Calamity for one year—the longest fixed-term declaration in Philippine history. (By comparison, the COVID-era State of Calamity lasted 2.5 years due to repeated extensions.) 

This one-year window: 

• Reinforces the price freeze, aggravating distortions.
• Enables liberalized public spending under relief and rehabilitation cover.
• Allows budget realignments, procurement exemptions (RA 9184 Sec. 53[b]), calamity/QRF access, and inter-agency mobilization (RA 10121). 

In effect, the national calamity declaration acts as a workaround to the spending constraints imposed by the flood-control corruption scandal. It restores fiscal maneuvering room under the guise of emergency relief and rehabilitation. 

This is emergency Marcos-nomics, designed to lift headline GDP via public-sector outlays—on top of pandemic-level deficits, easy-money liquidity, and the FX soft-peg regime. 

XXII. More Easing? The Rate-Cut Expectations Game 

Layered onto this is the growing consensus expectation of a jumbo BSP rate cut in November. One must ask: 

• Are establishment institutions applying indirect pressure on the BSP?
• Or is the BSP conditioning the public for an outsized cut to stem a crisis of confidence? 

Both interpretations are possible—and neither signals macro-stability. 

Meanwhile, supermarkets warn that “noche buena” food items may rise due to relief-driven demand—a symptom of distortions. 

This is the predictable byproduct of a price-freeze regime: shortages, hoarding, cost-pass-through, and black-market substitution.

XXIII. A Fiscal Shock in the Making, Black Swan Dynamics 

At worst, emergency stimulus during a slowdown widens the deficit and accelerates fiscal deterioration—pushing the economy toward the fiscal shock we warned about in June: 

"Unless authorities rein in spending—which would drag GDP, risking a recession—a fiscal shock could emerge as early as 2H 2025 or by 2026.  

"If so, expect magnified volatility across stocks, bonds, and the USDPHP exchange rate."

Figure 6 

Market behavior is already signaling intensifying stress: the USDPHP and the PSE remain under pressure despite repeated rescue efforts. (Figure 6) 

XXIV. Conclusion: Crisis as the Only Reform 

A political-economic crisis—a black swan event—doesn’t happen when expected. It occurs because almost everyone is in entrenched denial and complacency, blinded by past resilience. Like substance abuse, they believe unsustainable events can extend indefinitely: It hasn’t happened, so it won’t (appeal to ignorance). 

But history gives us a blueprint: 

economic strains → political tensions → revolution/reforms

• EDSA I followed the 1983 debt crisis.
• EDSA II followed the 1997 Asian Financial Crisis.

Economic strains were visible even before the flood-control scandal. This is Kindleberger’s and Minsky’s late-cycle phase: swindles/fraud/deflacation emerge when liquidity thins, growth slows, tenuous relationships and political coalitions fracture. 

More improprieties—public and private—will surface as slowing growth exposes hidden malfeasance, nonfeasance, and misfeasance. 

The sunk-cost architecture of vested interests, built on free-lunch trickle-down policies, points to a grand finale: either EDSA 3.0 or a putsch. 

A crisis, not politics, will force change. 

To repeat our conclusion last October, 

In the end, because both political and economic structures are ideological and self-reinforcing, reform from within is improbable.  

The deepening economic and financial imbalances will not resolve through policy, but will ventilate through a crisis—again the lessons of the post-1983 debt restructuring of EDSA I and the post-Asian Financial Crisis of EDSA II.  

____

References

Prudent Investor Newsletter, When Free Lunch Politics Meets Fiscal Reality: Lessons from the DPWH Flood Control Scandal, Substack, September 07, 2025 

Prudent Investor Newsletter, The 5.5% Q2 GDP Mirage: How Debt-Fueled Deficit Spending Masks a Slowing Economy, Substack, August 10, 2025 

Prudent Investor Newsletter, Is the Philippines on the Brink of a 2025 Fiscal Shock? Substack, June 08, 2025

Prudent Investor Newsletter, The Political Economy of Corruption: How Social Democracy Became the Engine of Decay, Substack, October 26, 2025 

Prudent Investor Newsletter, The USD-PHP Breaks 59: BSP’s Soft Peg Unravels, Exposing Economic Fragility, Substack, November 02, 2025

  

Which Is the Black Swan for the Philippines: The Big One or War?

 

Never think that war, no matter how necessary, nor how justified, is not a crime—Ernest Hemingway 

In this issue: 

Which Is the Black Swan for the Philippines: The Big One or War?

Part 1. Thesis: Nature: The Big One

1A. The Wittgenstein Trap

1B. Between Tectonics and Politics

Part 2. Anti-Thesis: Human Action: Man-Made Disasters

2A. Brewing Crisis: Second ‘Ayungin’ Thomas Shoal Incident

2B. Chinese 36 Stratagems in Action

2C. Escalation Beyond the Shoals

2D. The Root of War: Human Action

2E. Thai-Cambodia Border Clash and Thai’s Domestic Policy Fissure

2F. Fatalities: Wars Eclipse Earthquakes

2G. Unknown Unknowns-Black Swan Event: The Final Trigger

Part 3. Synthesis: Nature’s Convulsions vs. Man-Made Catastrophes

3A. The Human Trigger

3B. The Shape of Future Wars and the Grey Swan

3C. War Economies and Systemic Fragility

3D. Conclusion: The Shape of the Next Black Swan

 

Which Is the Black Swan for the Philippines: The Big One or War? 

Nature versus human action—which would happen first, and which would be deadlier?

Part 1. Thesis: Nature: The Big One 

A string of significant earthquakes—magnitude 5 and above—has recently shaken the Philippines.

Figure 1 

From Cebu’s 6.9 (September 30) to Davao Oriental’s 7.4 (October 10), to Negros Occidental and Zambales’s 5.1 (October 11), to Surigao del Sur’s 6.0 (October 11), to Surigao del Norte’s 6.2 (October 17) and to Ilocos Norte’s 5.2 (October 17), the tremors have been relentless and have drawn public anxiety. Both Cebu and Davao Oriental continue to record over a thousand aftershocks. (Figure 1) 

Despite denying possible interconnections among these tremors, officials and media have begun to promote the likelihood of "The Big One" in the National Capital Region—a 7.2-magnitude quake expected to “bring catastrophic destruction” to Metro Manila. 

The Philippine Institute of Volcanology and Seismology (PHIVOLCS) bases its forecast or hazard assessments on the West Valley Fault’s recurrence interval of 400–600 years, suggesting that “its next movement may possibly happen earlier or later than 2058.”

A Japan International Cooperation Agency (JICA) study further estimates that The Big One could result in 33,500 fatalities and 113,600 injuries.

Adding to the anxiety is talk of a “Culebra Event,” coined by independent researcher Brent Dmitruk, describing a potential chain reaction of earthquakes triggered by tectonic stress transfer across fault systems—like a slithering snake (culebra in Spanish). Though unsupported by mainstream seismology, the idea captures public fear that defies conventional models and timelines.

The Philippines, of course, is no stranger to major quakes and has endured two major quakes in modern history:

The Moro Gulf Earthquake (August 17, 1976, magnitude 8.1) near Mindanao and Sulu caused 5,000–8,000 deaths, from both quake and tsunami.

The 1990 Luzon Earthquake (July 16,1990. magnitude 7.8) centered in Rizal, Nueva Ecija, killed 1,621 and injured 3,500, destroying buildings even in Metro Manila—though fatalities in the NCR were limited to three.

First, these events show that even the strongest recorded quakes—occurring decades ago and in poorer eras—produced casualties below 10,000.

Second, with today’s supposed technological advances, stricter building codes, and a “wealthier” economy, it is doubtful that "The Big One" would match JICA’s apocalyptic estimates—unless the quake’s magnitude or duration exceeds historical precedents.

Third, when PHIVOLCS says it may occur "earlier or later than 2058," it essentially admits ignorance or uncertainty, dressed up as science. The 400–600-year interval is a broad statistical range—based on paleoseismic trenching data—not a clock.  

If the Big One hits in 2058 or later, many of us won’t be around to validate the prophecy—unless futurist Ray Kurzweil’s “Singularity” delivers on its promise to merge machine intelligence and humanity in the quest for immortality.

Fourth, earthquake prediction remains closer to numerical choreography than precise science.

As Wikipedia notes: “After a critical review of the scientific literature, the International Commission on Earthquake Forecasting for Civil Protection (ICEF) concluded in 2011 that there was considerable room for methodological improvements. Many reported precursors are contradictory, lack measurable amplitude, or are unsuitable for rigorous statistical evaluation." 

Even behavioral studies of animals as predictors have failed to establish reliability—no constants, no reproducibility. 

As Wikipedia notes, many earthquake ‘predictions’ are remembered only when they appear to hit — a textbook case of selection bias. In reality, misses vanish quietly into obscurity, while lucky coincidences are framed as scientific foresight. 

To date, no model has achieved reproducible accuracy in predicting the exact timing, magnitude, or location of a major quake—anywhere in the world. 

1A. The Wittgenstein Trap 

Seen through Wittgenstein’s Ruler (as applied by Nassim Taleb): 

Unless you have confidence in the ruler’s reliability, if you use a ruler to measure a table, you may also be using the table to measure the ruler. 

Applied here, government agencies present statistical intervals as confidence. If a quake happens within the range, it validates neither the model nor the state—it only confirms that earthquakes happen eventually.

If it doesn’t, the model isn’t falsified—it’s simply "extended." 

Duh! 

That’s the Wittgenstein trap: the model (the ruler) is never truly tested by reality (the table). Every outcome is reinterpreted to preserve authority. 

The likelihood that earthquake models hit their prediction—timing, location, and magnitude—is effectively near zero. 

Their utility lies not in prophecy but in policy: infrastructure codes, disaster preparedness, funding and others. More importantly, the political need to manage fear. 

Keep this in mind, the "Big One" may eventually occur—but whether it happens as predicted is almost entirely coincidental. 

And when it does, its qualitative effects are likely to depart significantly from the scenarios sold to the public by official experts. 

1B. Between Tectonics and Politics

Figure 2

Earlier, we proposed in our October 10 post on X.com that these seismic episodes may be “coincidental geologically, yet symbolically it feels as though the ground beneath us—literally, institutionally, and metaphorically—is shifting.”  (Figure 2) 

That remark, written amid an unfolding corruption probe, captured a deeper truth: instability in governance mirrors instability in nature. Both release pressures accumulated over time—one through tectonic strain, the other through moral decay—manifesting as eroding trust, public fatigue, and cynicism toward those meant to uphold order. 

Thus, the “Big One” is not merely a geological prophecy but an allegory for a state under pressure, its faults widening both underground and within. Economic tectonics—liquidity cycles, capital migrations, and policy misalignments—converge with political fault lines, creating a landscape where what is called “resilience” may simply be the calm before the rupture. 

For while nature’s tremors follow blind physics, the greater danger lies in human volition—where pride, fear, and miscalculation can unleash catastrophes far deadlier than any fault line. 

The next rupture may not come from the earth, but from the choices of men. 

Part 2. Anti-Thesis: Human Action: Man-Made Disasters

Figure 3

2A. Brewing Crisis: Second ‘Ayungin’ Thomas Shoal Incident

While the heebie-jeebies over “The Big One” and other earthquakes often grip the public, a more insidious tremor unfolds daily in the South China Sea. Media reports chronicle near-constant confrontations between China’s military and Philippine forces: Chinese jets tailing Philippine Coast Guard aircraft over Bajo de Masinloc, warships aiming lasers at Filipino fishermen, and water cannons battering resupply missions to contested shoals. (Figure3) 

The Second ‘Ayungin’ Thomas Shoal incident on June 17, 2024 marked one of the most volatile flashpoints in recent years. 

During a resupply mission to the BRP Sierra Madre—a grounded WWII-era vessel serving as a Philippine outpost—China Coast Guard (CCG) personnel rammed, boarded, and wielded machetes and axes against Philippine Navy boats. The skirmish left several Filipino personnel injured, one severely. Some officials described it as a “near act of war.” 

Even prior to this, China’s repeated use of water cannons had already prompted warnings that a Filipino fatality could trigger the 1951 U.S.–Philippines Mutual Defense Treaty (MDT). 

Still, officials refrained from escalating the matter, citing the absence of firearms—an example of legal technicalities serving as political veneer. 

But let’s be candid: this "restraint" was not a purely local decision. 

The United States, already deeply entangled in the Russia–Ukraine war and the Israel–Palestine–Hezbollah–Iran conflict, has been supplying arms, intelligence, logistics, funding and etc., across multiple theaters, likely sought to avoid opening another front with China. With its strategic bandwidth stretched thin, Washington may have quietly signaled Manila to stand down, avoiding direct escalation with Beijing. 

2B. Chinese 36 Stratagems in Action 

China’s tactical behavior in the South China Sea mirrors or aligns with several of the Thirty Six Stratagems, a classical Chinese playbook for deception and maneuver: 

1. Beat the grass to startle the snake – China’s repeated use of water cannons, laser targeting, and close flybys—especially when Philippine vessels are accompanied by media or U.S. observers—serves as deliberate provocation to test: 

A) Philippine resolve and limits under Marcos Jr.’s more assertive maritime stance; 

B) U.S. response thresholds under the 1951 Mutual Defense Treaty—will Washington truly go to war for Manila or is this just posturing? 

C) Sphere of Influence: Test ASEAN’s cohesion, identifying weak links, wavering partners, and potential recruits for Chinese influence 

2. Sacrifice the plum tree to preserve the peach tree – Accept small losses to secure larger strategic interests. China may tolerate reputational costs (international condemnation, legal rebukes) to maintain de facto control of contested waters and normalize its presence. 

3 Make a sound in the east, then strike in the west – Create diversions to mask true objectives. While public attention centers on high-profile flashpoints like Second Thomas Shoal, China quietly fortifies other positions such as the Paracel, (Subi Reef) Spratly Islands and Luconia Shoals, expanding influence with minimal resistance U.S. Army Pacific. 

There are more, but we opted to limit it to these. 

2C. Escalation Beyond the Shoals 

Philippine leadership has also amplified its rhetoric on Taiwan, signaling a shift from territorial defense to strategic alignment with U.S. interests. Defense Secretary Gilberto Teodoro’s visit to Mavulis Island, the northernmost Philippine outpost near Taiwan, was interpreted by Beijing as a provocative move. 

The United States, for its part, has accelerated its military buildup in the Philippines—provoking sharp responses from Beijing. 

• MRC Typhon: Mid-Range missile platform capable of launching SM-6 and nuclear capable Tomahawk missiles 
• NMESIS: Anti-ship missile system
• MADIS: Air defense system designed to counter drones and aerial threats 

These deployments have drawn sharp rebukes from China, which views them as encirclement. 

2D. The Root of War: Human Action 

While wars may have complex causation, their ignition essentially boils down to human action—impulse, emotion, pride, ambition, ideology, faith, fear or the pursuit of power. 

Figure 4 

Whether it’s:

• Mythic provocation (Helen of Troy)
• Territorial hunger (Lebensraum)
• Political culture (Bushido, Spartan honor)
• Ideological clash (nationalism, communism, democracy)
• Faith and doctrine (religious wars)
• Oppression and independence (colonial revolts) 

…each war is a man-made disaster, often more devastating than nature’s fiercest convulsions. (Figure 4) 

Again, history’s wars are rarely accidents of circumstance; they are the culmination of deliberate human choices, ambitions, and fears. Each cause—territorial, ideological, or psychological—reflects a particular configuration of human action under pressure 

2E. Thai-Cambodia Border Clash and Thai’s Domestic Policy Fissure 

Take the recent case of the Thai–Cambodia border clashes, which erupted on July 24, 2025, and lasted five days. The conflict resulted in 38 confirmed deaths, over 300,000 civilians displaced, and dozens injured. A U.S.–China–ASEAN-brokered ceasefire was reached on July 28 in Putrajaya, Malaysia, though violations were reported within days.

While tensions trace back to colonial-era boundary ambiguities—notably the Franco-Siamese Treaties of 1904 and 1907—the immediate trigger was political destabilization in Thailand. A leaked phone call between Prime Minister Paetongtarn Shinawatra and Khleang Huot, Deputy Governor of Phnom Penh, exposed internal rifts between Thailand’s civilian leadership and its military establishment. The fallout led to Paetongtarn’s ouster, which reportedly emboldened the Thai military, escalating border hostilities and complicating diplomatic restraint. 

This episode exemplifies how domestic political fractures—especially civil-military dissonance—can act as a proximate cause of war, even when historical grievances simmer in the background. 

Although the engagement occurred without the direct involvement of superpowers, the casualties, displacement, and property damage were almost comparable to those from a major earthquake. 

2F. Fatalities: Wars Eclipse Earthquakes 

But this is a mere tremor compared to the tectonic toll of modern wars. In the Russia–Ukraine conflict and the Israel–Palestine–Hezbollah–Iran escalation, aggregate casualties have surged into the tens of thousands, with entire cities reduced to rubble and economies hollowed out. 

Zooming out, the 20th century offers even starker metrics:

• World War I: ~20 million deaths
• World War II: ~60–85 million deaths (approximately 500,000 to 1 million Filipinos perished)
• Korean War: ~3 million deaths
• Vietnam War: ~2–3 million deaths

 These are not just numbers.  Wars inflict far greater devastation on society—its people, its social fabric, capital, financial and economic wellbeing—than most natural disasters. 

2G. Unknown Unknowns-Black Swan Event: The Final Trigger 

Former U.S. Defense Secretary Donald Rumsfeld, defending the absence of evidence linking Iraq to weapons of mass destruction, famously invoked the concept of “unknown unknowns”—the things we don’t know we don’t know. 

In many ways, Black Swan events fall under this same category. They share three defining traits: they are unpredictable, highly improbable, and extremely consequential—whether catastrophic or transformative. 

Part 3. Synthesis: Nature’s Convulsions vs. Man-Made Catastrophes 

The fault lies not in our stars, but in ourselves—Shakespeare (Julius Caesar) 

Geological cycles and seismic displacements will inevitably occur—whether tomorrow, next year, or within our lifetime. But despite their scientific veneer, no current technology can predict their timing or magnitude with precision. And when framed within historical context, their feared impact may be less apocalyptic than media portrayals suggest. 

Still, situational awareness and preparedness should remain a universal goal—to prevent one from becoming a collateral of what Nature or Providence may unleash. 

3A. The Human Trigger 

By contrast, wars are man-made disasters—often triggered not by grand strategy, but by accidents, miscalculations, and misinterpretations, all fueled by human frailties. The daily confrontations in the South China Sea could easily escalate into a bilateral kinetic engagement, like the Thai–Cambodia or India–Pakistan border clashes.

Should escalation occur—and if the Philippines invokes the 1951 Mutual Defense Treaty with the United States—the world could awaken to the unthinkable: a third world war. This is not hyperbole—it’s a structurally plausible outcome.

And this could happen anytime. As long as belligerence dominates bilateral policy, the spark could ignite today, tomorrow, next week, or a year from now. The extent of destruction remains deeply unknown—dependent on the nature and scale of warfare employed.

3B. The Shape of Future Wars and the Grey Swan

Unlike World War II, which pursued territorial conquest, modern warfare is more strategic than expansive. In the Russia–Ukraine war, occupation has largely focused on Donetsk and Luhansk —ethnically Russian regions—with limited push toward Kyiv. In contrast, the Israel–Middle East conflict may reflect ambitions for a Greater Israel, with broader territorial implications.

Yet the Philippine public remains benumbed—desensitized by repetition and diversion, dulled by inertia. This jaded reaction blinds us to escalation, even when its architecture is already in place.

It’s not a Black Swan—it’s a Grey Swan: known, possible, but broadly discounted. 

3C. War Economies and Systemic Fragility 

Meanwhile, internal economic fragilities mirror these geopolitical tensions.

Figure 5 

The war economies of Thailand and the Philippines have been among the worst-performing Asian stock markets in 2025, down -8.97% and -6.73% year-to-date, respectively (as of October 17). Though internal fragility remains the primary concern, this also suggests that geopolitical tensions have contributed to the erosion of investor confidence. 

Despite global equities reaching record highs amid easy-money policies and the weak dollar, these two “war economies” remain laggards. 

If liquidity tightens globally, could leaders resort to military conflict—a survival mechanism cloaked in patriotism— as a means to divert public attention from political economic entropy? 

That’s our Black Swan. 

War is conscious cruelty compounded over time—the most preventable catastrophe, yet the one that most often eclipses nature’s fiercest convulsions.

3D. Conclusion: The Shape of the Next Black Swan 

In the end, both earthquakes and wars spring from ruptures—one from the shifting of tectonic plates, the other from the collision of human wills. The former is inevitable, a law of Nature; the latter is avoidable, yet repeatedly chosen. 

One humbles man before forces beyond comprehension; the other exposes the peril of his own hubris. Between Providence and pride lies the fragile equilibrium of civilization. Whether the next Black Swan rises from the earth’s crust or from the depths of human ambition, its impact will test not our technology, but our wisdom—our ability to foresee, restrain, and prepare before the unthinkable unfolds.