Citigroup sees synchronized global recession in 2009

(Reuters) - Citigroup forecast a synchronized global recession in 2009 and said developed economies may "flirt" with deflation while emerging market economies will slow sharply, adding that global corporate earnings were only a quarter of the way through an expected 50 percent drop.

Citigroup, in its global equity strategy note titled "Battling The Bear," said it now sees global real gross domestic product growth at 0.5 percent for 2009, down from the 2.4 percent forecast it made three months ago.

"The fundamental outlook for 2009 looks dire," Citigroup global equity strategists warned, but added that global equities looked cheap in absolute terms and very cheap against defensive assets.

"This battle between dire fundamentals and cheap valuations will be the defining theme of 2009," they said.

"We think that neither will win out over the year, but it will be a volatile ride."

They favour cheaper European equities over "underweight-" rated Asia where the potential for earnings disappointments remain considerable, and are "neutral" on the United States given that the region is further into the earnings downturn.

The worsening global recession has already driven MSCI's all-country world stock index .MIWD00000PUS corporate earnings down by 13 percent from its 2007-end high, the strategists said and added that they do not expect this profits cycle to bottom until 2010.

The strategists upgraded the global financials and utilities sector to "neutral," and downgraded the materials sector to "underweight" and energy to "neutral."

The MSCI all-country world index, which lost more than 43 percent in 2008, was down 1.2 percent by 10:54 a.m. British time Thursday.

The following table lists Citigroup's global preferred names:

Ambev (AMBV4.SA) (ABV.N)

AstraZeneca Plc (AZN.L)

Bank of America Corp (BAC.N)

Bharti Airtel Ltd (BRTI.BO)

BHP Billiton Plc (BLT.L)

FirstEnergy Corp (FE.N)

Gazprom (GAZP.MM) (GAZP.RTS)

Hutchison Whampoa Ltd (0013.HK)

Intel Corp (INTC.O)

Itau Unibanco (ITAU4.SA)

Merck AG (MRCG.DE)

Mitsui OSK Lines Ltd (9104.T)

Nestle SA (NESN.VX)

NIKE Inc (NKE.N)

Orascom Telecom Holding (ORTE.CA) (ORTEq.L)

Seven & I Holdings Co Ltd (3382.T)

Sonic Healthcare Ltd (SHL.AX)

Vivendi SA (VIV.PA)

Vodafone Group Plc (VOD.L)

Zurich Financial Services AG (ZURN.VX)

(Reporting by Tenzin Pema in Bangalore; Editing by Himani Sarkar)