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 favor 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 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 1054 GMT Thursday.

The following table lists Citigroup's global preferred names:

Ambev

AstraZeneca Plc

Bank of America Corp

Bharti Airtel Ltd

BHP Billiton Plc

FirstEnergy Corp