See a slow and patchy growth, not recession, says Citigroup

Tobias Levkovich, chief US strategist at Citi doesn't anticipate a recession in the US economy, but sees a slow and patchy growth. "The credit conditions in the US are still very favourable for business investments," he told CNBC-TV18 in an interview.

He expects to see another form of a banking crisis, where markets will essentially freeze up and credit would become very dear and expensive. The businesses will also slowdown meaningfully as a result of that, he added.
He further stated that the investors have been very concerned about the intra-session swings. Here is the edited transcript of his interview. Also watch the accompanying video. Q: What is your view on the plan being suggested for European nations in order to bring them out of the current crisis? How successful can that plan be?
A: Europeans are trying to figure out the right way to address some of the problems out of Greece, Portugal and Ireland, and prevent it from spreading to some of the non-peripheral countries, but into some of the core countries. The exact details of such a program will still be negotiated because of the political needs across Europe. Q: We have seen a massive rally across European markets because of a hope that such a plan will be passed. How sustainable is the global relief rally on the back of what we are discussing today?
A: It is very challenging. Banks own a lot of the sovereign credit. The capital ratios of those banks become very tenuous and you would need to have some form of bailout or a TARP like program to help those institutions. It would be very serious.
We are really worried about the US. Investors in Asia should be worried about this as well. We are seeing another form of banking crisis, where markets essentially freeze up and credit becomes very dear and expensive. As a result of that, the business slows down very meaningfully. The seriousness of the problem is forcing the various Finance Ministries and central banks to address the problem. Q: What do you feel about the core market, especially US, in terms of whether or not the economy in the US is headed for recession?
A: We are not anticipating recession. We are looking at slow and patchy growth. Unfortunately, some of the political dynamics will also impact the environment. The credit conditions in the US are still very favourable for business investments.
Other factors like politics and regulation are causing some problems. We are not getting a credit growth in labour either, but we can scrape by and avoid a recession. Q: In India, we worry a lot about liquidity flows because it impacts our market? What impact does this volatility has had on global risk appetite? How do you see risk appetite over the next couple of months?
A: It has clearly marked down the appetite for risk. Investors have become very concerned about the swings. For example, the markets were up over 300 today and closed on 140 on the DOW in the US, which clearly has the impact. As a result, investors have shied away.
The funds have flown away from equities. A couple of weeks ago, the weekly outflow from mutual funds and equity mutual funds targeted the US to be as bad as we saw in October 2008.