The general government was in balance in the first quarter of 2019 whereas in the same period last year it recorded a surplus of 0.4% of GDP. This change reflects, in particular a further acceleration of expenditure growth, which is mostly of a structural nature and linked to higher growth in expenditure on compensation of employees and to higher social transfers. At the same time a relatively high increase in investment expenditure continued. The high growth in revenues stemmed mainly from the continued favourable economic and labour market conditions. The deterioration of the primary balance was even more pronounced, which shows that the reduction in interest expenditure continues to play an important role in maintaining a relatively favourable nominal balance. In spite of the deterioration of the balance in the beginning of the year, the Fiscal Council estimates that the 2019 Stability Programme objectives are achievable. In this context, we recall that even if the stated objectives are achieved, the structural primary balance will continue to decline in 2019. This indicates the continuation of expansionary and pro-cyclical fiscal policy, which is inappropriate in the current macroeconomic situation according to the estimates of the Fiscal Council.
In the first quarter of the year, the general government debt decreased to 67.9% GDP. This decrease is primarily attributable to economic growth and the primary surplus of the general government balance, but their contribution decreased on the previous year due to a weaker growth and a lower surplus.
Economic growth is slowing down in line with projections. On the basis of current output gap estimates and trends in other indicators that we use to determine the cyclical position of the economy, we assess that the economy begins to phase into the mature stage of the business cycle. At the same time, cost and price pressures are gradually increasing as a result of supply-side restrictions in the labour market thus increasing risk to export competitiveness. Further risks arise from uncertainties in the international environment, notably in relation to trade disputes.
The Fiscal Council considers that the increase in macroeconomic risks requires greater prudence in the conduct of fiscal policy. Attention is drawn here to the fact that the current proposals for measures do not place enough emphasis on their fiscal effects, particularly with a view to achieving long-term sustainable public finances.