The early indications for Europe’s economy in 2006 look pretty positive. Tuesday’s purchasing managers’ survey for the manufacturing sector was stronger-than-expected and included the first growth in manufacturing employment for more than four years.

Meanwhile, German unemployment fell by a greater-than-expected 110,000, there was an indication of buoyant German retail sales in December and figures showed the French economy grew by 0.7 per cent in the third quarter. According to Credit Suisse First Boston: “The euro area economy looks set to start 2006 with considerable momentum. Growth should be at its strongest for six years.” However, economic strength seems likely to prompt the European Central Bank into a further tightening of monetary policy. CSFB expects rates to end the year at 3.25 per cent (from their current 2.25 per cent); Capital Economics believes rates will hit 3.5 per cent.