The world’s financial markets ignored the results of stress tests applied to European banks, and the wave of risk asset sales extended in the context of the absence of a solution to the Greek debt crisis, which has sparked fears of contagion to Italy and Spain. Specialists say that the stress tests did not take into account several key factors, such as what would happen if Greece defaults, plus the fact that captalization levels are not strong enough to face the crisis, leading to the conclusion that the tests were too weak.

European stock markets have shown a downward trend, and the risk premium for some countries is now at all-time highs. Italy’s MIB sank 2.87%; Madrid’s Ibex fell 1.44%; The French CAC-40 lost 2.04% and Frankfurt’s DAX stumbled 1.55%. In Brussels, the BEL20 sank 2.17% for fears Belgium will be next in line, since public debt is 97% of GDP.

In the U.S., Europe added to debt ceiling woes as the Dow Jones average retreated 0.74% and Nasdaq and S&P500 fell nearly 1%. Thus, a favorable quarterly report season could pass by unnoticed. The Mexican stock market fell 1.04% and the peso reached three consecutive down sessions, reaching 11.7580 to the dollar.

Funds Eye Projects

According to private fund surveys and fund managers, private investment funds in Mexico are extremely liquid at this time, with up to US$3 billion ready to be channeled to strategic sectors. One fund manager, Fausto García, asserts that the most appealing sectors for fresh capital deals in Mexico today include health services, education, consumer goods and leisure, all of which are developing markets with huge long-term potential and sufficient demand.

Private capital funds are firms devoted to investments in medium-sized firms with over five years in their markets, with capital requirements of 50 million pesos or more. Private hospitals are a sector that offers enormous potential, since wage-earners are devoting more resources to private health care, the same as private education, in which universities have increasingly been turning to private funds for expansion financing.

One of the chief obstacles that private funds face in today’s environment, according to surveys, is the Mexican business culture, wherein business owners are still reluctant to share in management ruties with new partners, even though private funds are experienced in running businesses and enjoy key contacts.

Family Income Drops

Between 2008 and 2010, the average quarterly income of Mexican families dropped by 12.3%, while spending decreased 3.8%, according to a biannual study released by the National Statistics Institute, INEGI. During the same comparative period, general income decreased from 39,823 to 34,936 pesos. Outlays fell from 31,809 to 30,596 pesos.

According to INEGI’s National Home Income and Expenditure Survey, the monetary portion of total income fell more than the non-monetary component, decreasing 13.6% and 6.8%, respectively. Within monetary revenues, the biggest drops came in independent work with 38.9%, and property rentals with 34.8%. In non-monetary current income, fringe remunerations fell 43.6%, while auto-consumption dropped 21.4%.

INEGI, which provides very little information on methodology, says that of the 10 segments in which the population’s income levels are divided, says the 10th segment, corresponding to the highest incomes, was the one that suffered the greatest setback with 17.8%, while the first segment, representing the poorest families, experienced an income drop of 7.6% during the period covered by the survey.

Growth in Jeopardy

The outlook of a slow U.S. growth and the growing financial problems in European nations will combine to curtail Mexico’s economic perspectives, putting at risk the possibility of growing beyond 4% this year, according to the nation’s industrial sector. The National Manufacturing Industries Chamber (Canacintra) charges that neither the government nor Congress have shown any interest in coming up with an economic structure capable of withstanding the onslaught of external upheavals.

“The adoption of measures that would correct this tendency, including the approval of major structural reforms, cannot be delayed any further”, said the organization. The uncertainty regarding the evolution of the Mexican economy threatens to grow worse, so our outlook for the coming months is difficult indeed, said Canacintra in its report, “Economic Synopsis”, where it points out that the U.S. slowdown will have an impact on industrial output, and thus, on our trade balance.

Canacintra analysts say it’s not enough to seek growth, because it must be accompanied by better options for income, jobs and general wellbeing. The cases of Greece and Portugal, which threaten to unleash a new financial crisis, will maintain low expectations for Mexico for at least the remainder of the year, said Canacintra.

Also, check out the following opinion columns:

“Rich and Powerful”, by Marco A. Mares

There are five groups of investors interested in acquiring the pension fund ING Afore. Unofficially, the fund¿s market value is US$2 billion. It is ranked third in the Mexican market, with assets of over 200 billion pesos. Outright divestiture is one of the options being analyzed. The ING data room is now open to interested parties. Among the playes are Banorte along with a Chilean partner, as well as Profuturo, which would vie along with another Chilean partner. The sale has its origins on the international financial crisis, after which the Dutch group decided to divest non-banking assets, to comply with a Dutch government bailout of 10 billion euros. In Mexico, the pension fund market shows a clear tendency towards consolidation, because margins have been squeezed to the limit.

“The Great Depression”, by Enrique Campos

Republicans are preparing a Pontius Pilate-type exit to blame Barack Obama for ballooning the U.S. debt, while with their left hand they put a straitjacket on the Democrat so that he’ll conclude his first term of office with his hands tied. A presidential veto looms if conservatives dare to enact a bill to limit government spending by decree. In the very dangerous game of chicken that Republicans and Democrats are playing, they don’t seem to realize that their trains are too big to maneuver, and that the inevitable collision will be costly to all, with a double dip recession at the very least. In the end, the budget and debt-ceiling battle is a show of force in preparation for next year’s presidential showdown.

“Strongbox”, by Luis Miguel González

The debt ceiling talks in Washington are yet another tale of terror. The U.S. faces an economic relapse while the political class shows it’s disconnected from reality. There’s a 50% chance of a downgrade in the next 90 days, according to S&P. We were already spooked, and Grandpa decided to tell us another horror story. In other times, the S&P warning might have been taken philosophically, but today’s situation is far too touchy. Across the Atlantic, there is abundance of horror movies. The euro zone has arthritis, and Germany insists on dictating austerity lessons. In Washington, Republicans are immersed in a tug of war with Obama, more than anything else, to expose him as an incompetent president. Obama has lost his powers of persuasion, and he appears to lack power. A default scenario is unthinkable, but there’s always a first time for everything.

rmena@eleconomista.com.mx