In H2 2018 (the first six months of the 2018/19 fiscal year) subsidies to gasoline and food prices decreased for the first time to 12% of public spending, from 14.2% in the same period of the previous year, helping to post a primary fiscal surplus of +0.4% of GDP (-0.3% deficit a year ago). The interest expenses are still a heavy burden (4% of GDP), but declining public debt (forecast at 87% of GDP by 2020 from 108% in 2017) and the lengthening of debt maturities (from two years on average last year) should help to lower it as well as the debt service level (6.5% of GDP currently). Moreover, a byproduct of lower subsidies is more leeway in terms of monetary policy. The Central Bank has reignited its easing cycle in February (-100bps to 15.75%) and more is expected, since inflation should fall below the 10% mark by mid-2019 for the first time since Q1 2016. In all, this paves the way for sustained growth rates (+5.7% forecast in 2019). Half of this performance should be driven by investment growth.
