The government pretends to be endowed with the mystical power to accord favors out of an inexhaustible horn of plenty. It is both omniscient and omnipotent. It can by a magic wand create happiness and abundance. The truth is the government cannot give if it does not take from somebody—Ludwig von Mises
In this issue
Q4
and 2024 GDP: Consumer and Capital Spending Stagnates as Bank-GDP Concentration
Risks Deepen
I. The GDP’s Critical Defects
II. The Mainstream Narrative is Failing
III. Philippine GDP Predicament: Full Employment and
Record Credit, Yet Slowing Consumption?
IV. Malinvestments: Retail Expands While Consumer
Spending Stagnates
V. Proposed Minimum Wage Hikes to Compound Consumer Woes
VI. Q4 GDP versus SWS’ Q4 Milestone Highs in Self-Poverty
Ratings and Hunger; Critical Questions
VII. Q4 GDP Boosted by Government Spending, Services
Exports and Private Sector Construction
VIII. Q4 GDP’s Industry Side: Boost from Public Administration
and Defense and other Related Sectors
IX. Q4 2024 Boosted by Financialization Even as Manufacturing
and Real Estate Sector Languish; Deepening Bank-GDP Concentration Risks
X. More Signs of Consumer Weakening: Material Slowing ‘Revenge
Travel’ and Outside Dining GDP
XI. Summary and Conclusion
Q4 and 2024 GDP: Consumer and Capital Spending Stagnates as Bank-GDP Concentration Risks Deepen
Q4 and 2024 GDP were another big miss for the establishment. Government spending played a pivotal role in boosting growth, while consumers were sidelined. There is little awareness that the former indirectly causes the latter
I. The GDP’s Critical Defects
Inquirer.net January 31, 2025: The Marcos administration missed its growth target for the second straight year in 2024, falling below consensus after the onslaught of destructive typhoons had muted the typical surge in economic activities during the holiday season. Gross domestic product (GDP), the sum of all products and services created within an economy, expanded at an average rate of 5.6 percent for the entire 2024, the Philippine Statistics Authority (PSA) reported on Thursday…At the same time, last year’s performance failed to meet market expectations after settling below the median estimate of 5.8 percent in an Inquirer poll of 12 economists…The statistics agency reported that GDP had expanded by 5.2 percent in the fourth quarter, unchanged from the preceding three months and lower than the year-ago print of 5.5 percent. That was also below the median forecast of 5.8 percent.
Our preface: the BSP cut official rates in August, October, and December. It also reduced RRR rates in October, while the aggregate fiscal spending in 11-months reached all-time highs (ATHs), signaling massive stimulus or Marcos-nomics.
Despite this, the Philippine GDP registered 5.2% in Q4 and 5.6% in 2024.
Although GDP provides insight into how economic output is distributed across sectors—categorized by expenditure and industry—it does not present the equivalent allocation of spending by income class.
Therefore, it is arguable that the headline figure makes a critically flawed assumption by suggesting that the statistical spending growth applies to the average.
In other words, it assumes that the average citizen has experienced 5.2% growth in Q4 and 5.6% growth overall. The question, however, is how do you aggregate the spending of a few billionaires with that of those living in poverty?
And this applies to the inflation deflator used to calculate the headline figure as well: How accurate is it to derive an average inflation rate from a mishmash of diverse spending items like a mobile gaming subscription, rice, and vehicle wheels?
Apples and oranges, you say? Exactly.
If the nominal GDP and the deflator are flawed, why should we trust that the headline estimates reflect reality?
II. The Mainstream Narrative is Failing
Every start of the year, mainstream experts proclaim at the top of their lungs that GDP will align with sanguine government targets. Some even tout the likelihood of the economy reaching "middle-income status."
Beyond abstract reasoning, they rarely explain the mechanics of how they arrive at their estimated figures.
Either they ignore the data provided by the Philippine Statistics Authority (PSA), or their forecasts are based on a 'pin-the-tail-on-the-donkey' approach—bluntly put, faith in magic.
What does the PSA data reveal?
Figure 1
It shows that since the post-pandemic recession, GDP has operated within a secondary trendline. This means that despite occasional growth spikes, GDP growth will be SLOWER than in the pre-pandemic era. (Figure 1, topmost pane)
Using the exponential trend as a gauge, we see that Q4 GDP consistently exceeds the trendline but eventually retraces to the secondary support in the following quarters.
The same dynamic applies to the 2024 GDP. (Figure 1, middle graph)
The point having been made, realize that for GDP to meet the mainstream's numbers, it would require a significant breakthrough not only to reclaim the pre-pandemic trend but also to sustain it.
From a statistical standpoint, none of this is happening. Even the PSA’s chart reinforces the notion of a slowing GDP. (Figure 1, lowest chart)
Figure 2
As evidence, the government has struggled to wean itself off debt-financed pandemic deficits relative to GDP, which have served as a quasi-stimulus. Data reveals that they have become addicted to it. (Figure 2, topmost image)
Why, then, do they yearn for pre-pandemic GDP figures?
Incredible.
Statisticians-cum-economic experts often don't disclose that their perpetually optimistic forecasts might be about placating or bootlicking the government.
Why? For business and personal reasons. They might want to secure government contracts, underwrite debt issuance, intermediate stock trading, or gain accreditation as credit appraisers, among other things. On a personal level, they seek social desirability or good standing with officials for career advancement (revolving door politics), off-table deals, etc. In short: the principal-agent dilemma.
Essentially, overstating GDP or understating CPI numbers, or the mainstream's erroneous forecasts, come with no consequences for them—they have no "skin in the game."
However, for many in the investing public, consensus projections guide corporate strategies or investments in financial markets.
It’s unsurprising, then, that in addition to distortions in capital goods pricing due to stock market mispricing, overly optimistic guidance often leads to “build-and-they-will-come” debt-fueled malinvestments.
Many also invest their hard-earned savings in financial markets (stocks or fixed income) in the hope of achieving real or inflation-adjusted positive returns, without realizing that their investments are silently transferring wealth to politically connected economic elites, who are absorbing unsustainable amounts of debt.
And remember the inflation spike of 2022? NONE of these experts saw it coming.
In clear words, forecasts based on the principal-agent problem will likely keep the public blind to the escalating risks of a crisis.
Here's an example:
Businessworld, January 24: PROPERTY developers in the Philippine capital need to enhance their market research and consider lowering condominium prices to address the current “mismatch” between available units and buyer demand, according to property analysts. “These overpriced condos aren’t matching with the existing buyers…There are so many buyers, as in we’re talking millions of buyers, but the issue is they cannot afford [a condo in Metro Manila] anymore” (bold added)
The mainstream’s narrative is failing: Expect more to come.
III. Philippine GDP Predicament: Full Employment and Record Credit, Yet Slowing Consumption?
Let's conduct a brief investigation into the PSA's GDP data.
The government's statistics are riddled with paradoxical figures.
First, the government claims that the employment rate (as of November) has reached nearly its highest level. (Figure 2, middle chart)
Curiously, with low savings, how have entrepreneurs managed to fund investments in real businesses, leading to near-full employment?
FDI numbers hardly support this. Despite a spike in October, the 10-month FDI flow was up by only 6.6%, with 68% of those inflows coming from debt. Debt inflows are no guarantee of “investment.”
The likely source of funds might be from banking loans. Over an 11-month period, consumer credit captured the largest share of the net increase in Universal-Commercial Bank loans at 23%, followed by real estate at 18.74%, electricity at 9.72%, and retail trade at 9.52%.
However, retail and agriculture, which account for the largest shares of the working population at 21.3% and 20% respectively, suggest a different story.
Next, fueled by credit cards and salary loans, consumer credit continues to grow at a breakneck pace, setting nominal records consecutively. (Figure 2, lowest graph)
Ironically, despite full employment and unprecedented consumer credit growth, Q4 2024 saw real consumer spending in GDP terms increase by only 4.7%, similar to Q2 and marking the second lowest since Q2 2011, excluding the period of the pandemic recession.
Stagnating household consumption was a key factor in pulling down the period's GDP.
Moreover, household GDP mirrored the deceleration in Q4 2024, with consumer per capita GDP growth at just 3.8%—the lowest since Q3 2017.
Important questions arise:
-Where did all that record bank credit expansion go?
-How much of the consumer credit growth has been about refinancing existing debt?
-If productivity has been driving the GDP, why would a nation with full employment experience a sustained slowdown in household consumption?
In this context, government data on employment appears questionable.
IV. Malinvestments: Retail Expands While Consumer
Spending Stagnates
Figure 3
What’s more, households are struggling with consumption, mainly due to the inflation tax, which continues to erode their spending power. At the same time, they are using leverage to maintain their lifestyles. As this occurs, retail GDP continues to outgrow consumer spending. (Figure 3, topmost window)
Partly due to the mainstream’s constant cheerleading, retail entrepreneurs are hopeful that the consumption slump will reverse soon, and so have been aggressively expanding capacity. Retail GDP grew by 5.5% in Q4 and has outpaced consumer spending in 3 of the last 4 quarters. (Figure 3, second to the highest image)
Or, to put it simply, because of the mainstream belief in the 'build it and they will come' dogma, supply continues to outpace demand.
V. Proposed Minimum Wage Hikes to Compound Consumer Woes
In the meantime, news reports that "the House Committee on Labor and Employment has approved a bill for a P200 across-the-board legislated wage hike."
Would this not function as a form of redistribution or a protective moat in favor of elite companies, at the expense of micro, small, and medium enterprises (MSMEs)? How would this incentivize grassroots entrepreneurship when authorities are effectively raising the cost of doing business or barriers to entry?
How would minimum wage laws not negatively impact consumption and productivity while acting as a drain on savings?
Quoting economist Thomas Sowell, "Minimum wage laws play Russian roulette with people who need jobs and the work experience that will enable them to rise to higher pay levels." (Sowell, 2006)
VI. Q4 GDP versus SWS’ Q4 Milestone Highs in Self-Poverty Ratings and Hunger; Critical Questions
And there’s more. How does the 5.2% GDP square with polls showing record highs in consumer stress: "Self-Rated Poverty at 63%, highest in 21 years" and "December 2024 hunger was… at the highest level since the record high 30.7% during the COVID-19 lockdowns in September 2020"? (Figure 3, second to the lowest and lowest charts)
While the government touts the 5.2% GDP, SWS found that 63% of Filipino families rated themselves as "Poor," while "25.9% of Filipino families experienced involuntary hunger."
Simply put, this reflects popular sentiment about inflation: a vast majority of the population feels harried by the peso’s loss of purchasing power, and a quarter of them have actually experienced hunger.
Incredible.
So, who is overstating their data—SWS or the government?
Here’s the thing: If the GDP growth is based on unsustainable leveraging, what would the ramifications be?
Or if consumer balance sheets have been burdened by excessive gearing (spend-now, pay-later) to cope with inflation, how would this affect the economy?
When consumers reach the proverbial tipping point of leveraging and begin to scale down, wouldn't this slow the GDP? Wouldn't credit delinquencies rise, affecting the banks' already strained liquidity?
Or, wouldn’t this reduce lending, exacerbating liquidity pressures in the banking system and increasing defaults?
Could this not lead to rising unemployment, creating a feedback loop that slows GDP, decelerates bank lending, and drives up credit delinquencies?
By the same token, what happens to the supply side’s debt-financed overcapacity? Wouldn’t this worsen pressures on unemployment, output, consumer spending, and negatively affect the health of the banking industry?
Wouldn't increasing sentiments of hunger and perceptions of poverty not lead to higher risks of social disorder?
VII. Q4 GDP Boosted by Government Spending, Services Exports and Private Sector Construction
If household consumption weighed down the GDP, which sectors propelled it upwards?
Figure 4
From the expenditure side of the data, the answer is the government, construction, and export services.
Government GDP rose from 5% in Q3 to 9.7% in Q4. While construction GDP dipped from 8.8% to 7.8%, it still exceeded the 5.2% threshold. Private sector construction, driven by households (12.8%) and corporations (5.7%), powered the sector’s GDP, while government construction GDP stagnated at 4.7%. (Figure 4 topmost diagram)
Interestingly, while exports of goods entered a recession, declining by -0.37% in Q3 and -4.6% in Q4, services exports GDP surged from 2.3% to 13.5%, elevating the sector's performance from -1.4% in Q3 to 3.2% in Q4. (Figure 4 middle image)
Curiously, real estate services firm CBRE reported in 2024 that "32 percent of vacated (office) spaces are from the IT-BPM sector." Why have service export firms like BPOs been downsizing if their businesses were reportedly booming, as suggested by the GDP figures?
Meanwhile, gross capital formation fell sharply from 13.7% in Q3 to 4.1% in Q4, while durable goods GDP also plunged from 7.9% to just 0.1%. Unfortunately, this indicates a sluggish state of investments, which contrasts with the employment data.
The expenditure side of the GDP shows that government spending was primarily responsible for the Q4 GDP boost, supported by services exports and private sector construction. However, it also reveals that while consumer spending has stagnated, capital spending has languished.
VIII. Q4 GDP’s Industry Side: Boost from Public Administration and Defense and other Related Sectors
On the industry side, sectors like transport (9.5%), financial and insurance (8.5%), professional and business services (8.3%), public administration and defense (7%), education (6.2%), and health (12.1%) all grew above the GDP rate.
Or, to put it another way, outperforming government and related sectors contributed about 10% of the industry's GDP.
After the 2020 spike, the share of public administration and defense in GDP remains elevated compared to pre-pandemic levels. This should come as no surprise, as the government is focused on centralization, partly driven by a subtle shift toward a war economy. (Figure 4 lowest graph)
IX. Q4 2024 Boosted by Financialization Even as Manufacturing and Real Estate Sector Languish; Deepening Bank-GDP Concentration Risks
Figure 5
On the other hand, despite showing signs of a slight slowdown in Q4 2024, the financial and insurance sector's contribution to national GDP continues to expand. (Figure 5, upper chart)
It's not coincidental that the sector's improvements coincided with the BSP's unprecedented sector rescue in 2020. Since then, the sector's growth has not looked back, even as the BSP raised interest rates. That is, the sector’s GDP suggests that there was no tightening at all.
In Q4, banks accounted for 49% of the sector's GDP, while non-banks and insurance had respective shares of 32% and 13.33%. These sectors posted GDP growth rates of 8%, 8.4%, and 8.2%, respectively.
Yet the paradox lies in the sector's dependence on the real economy, as it lends and invests to generate profits and contribute value to GDP.
Real estate, trade (primarily retail), and manufacturing are among their largest borrowers, accounting for 40% of total bank lending as of last November.
Lending to the financial sector itself accounted for a 7.7% share, which together with the aforementioned sectors, totals 48.5% of all bank loans (from universal commercial, thrift, and rural banks).
Incidentally, these sectors are also significant contributors to the GDP, making up a 42.7% share of the national GDP. Including the financial sector, the aggregate GDP increases to 52.5%.
Aside from retail, the manufacturing sector posted a real GDP growth of 3.1%, while real estate GDP materially slowed to 3.0%, pulling its share of the national GDP to an all-time low! (Figure 5, lower diagram)
We previously discussed the sector's deflationary spiral, and the Q4 decline could signal further price drops in the sector.
To illustrate the struggles of the manufacturing sector, JG Summit announced the shutdown of its Petrochem business last week, in addition to the goods export recession in Q4.
To summarize, the Philippine GDP and bank lending exposure reveal an increasingly fragile economy heavily dependent on a few sectors, which have been buoyed by bank credit. This means that the higher the concentration risks, the greater the potential impact of an economic downturn.
X. More Signs of Consumer Weakening: Material Slowing ‘Revenge Travel’ and Outside Dining GDP
Another piece of evidence that consumer spending has been slowing can be found in the food and accommodation sectors' GDP.
The authorities' response to the pandemic with economy-wide shutdowns initially pushed Food GDP into an upward spiral, while the reopening triggered a "revenge travel" GDP surge in the accommodation sector.
However, the massive distortions caused by these radical political policies have started to unwind.
Figure 6
Accommodation GDP slowed from 12.2% in Q3 to 8.7% in Q4, while food GDP dropped from 10.1% to 4.9%. Since food accounts for a large portion (68%) of the sector, the overall GDP for the sector moderated from 10.7% to 6.1%. (Figure 6, topmost and middle charts)
The distortions caused by pandemic policies have led many investors to believe that the 'revenge travel' trend, or the recovery streak in tourism, will continue, fueling massive investments in the sector.
In our humble opinion, they have critically misread the market, as the growth rate of foreign tourist arrivals has substantially slowed in 2024. (Figure 6, lowest image)
Moreover, the sector's declining GDP further highlights the weakening of domestic tourism.
XI. Summary and Conclusion
1 Q4 and 2024 have reinforced the secondary trendline in GDP, continuing to show a slowdown in GDP growth.
2 Dwindling consumer spending has been a critical factor driving this slowdown.
3 Importantly, capital spending growth has also been lackluster.
4 Conversely, government spending has provided crucial support to GDP, along with contributions from other ancillary sectors.
Yet, these dynamics reveal that the Philippines operates under the flawed assumption of political "free lunches" — where government spending is seen as having only a positive impact, while ignoring the negative effects of the crowding out syndrome.
They also highlight the pitfalls of the BSP's 'trickle-down' policies, which have deepened concentration risks due to the bank-dependent financing of a few sectors.
It’s no surprise, then, that after the initial easing by the BSP in the second half of the year — which contributed to the dismal Q4 GDP, the January 2025 PSEi 30 crash and rising bond yields, the BSP proposes to continue the same strategy, slashing rates by 50 basis points and reducing reserve requirements by 200 basis points.
Succinctly, they are "doing the same thing and expecting different results."
____
references
Thomas Sowell, A Glimmer of Hope August 08, 2006, realclearpolitics.com
