Global economic growth should continue in 2006, and equities should remain more attractive than bonds, forecasts Credit Suisse in a new report.

“The global economy can be expected to continue its highly satisfactory trend into 2006,” it says. “Inflation should continue to move within the boundaries permitted by major central banks, thus limiting the scope for interest rate hikes.”

Analysts at Credit Suisse expect equity markets to outperform bond markets in 2006. “The next few months should also see occasional small-scale market corrections that should be viewed as buying opportunities,” it says.

It suggests that the acceleration of growth acceleration that has been evident since the middle of 2005 can be expected to continue into the first half of 2006 too. “The most recent economic indicators confirm broad based growth, not just in the U.S., but also in Asia and continental Europe. Production should increase at the fastest rate seen for 25 years,” it predicts. “In the second half of the year, however, against the backdrop of a weakening U.S. real estate market the momentum of growth should see a slight slowdown. Private consumption should nonetheless receive support from the labor market recovery.”

“Both the globally strong pace of economic growth and the particularly dynamic nature of growth in emerging economies such as China will be reflected in persistently high commodity prices,” it suggests.

Credit Suisse says that interest rates in the U.S. have reached their neutral bandwidth, so any further steps by the Federal Reserve will depend more on economic data than has been the case to date. Analysts expect rates to plateau at around 4.5% to 5%. The increasingly solid growth prospects of the eurozone also give the European Central Bank the opportunity to counter the strong growth in money supply, it adds.

In the view of Credit Suisse analysts, the U.S. dollar looks to have further potential to appreciate over the next 12 months. “Though the cycle of interest rate hikes in the U.S. can be expected to end in 2006, the interest rate advantage of the U.S. dollar is unlikely to narrow, thus remaining sufficient to strengthen the currency,” it says. “Moreover, the financing structure of the U.S. current account deficit improved noticeably in 2005, and concerns over the country’s ability to finance this deficit should slip into the background.”

Interest rate specialists at Credit Suisse are still counting on a slight increase in yields on 10-year U.S. government bonds in the months ahead, to around 4.7%. Nonetheless, the end of the rate hiking cycle in the U.S. should provide investors with a buying opportunity, it says.

Analysts at Credit Suisse are advising investors to sit on their equity holdings for the time being, saying, “The next few months should also throw up the occasional small-scale market corrections that should be viewed as buying opportunities.”

Of the major markets, analysts continue to see Japanese stocks as having the greatest potential, though some corrections may be experienced in the short term. Emerging market equities should once again outperform those of industrialized nations, although not to the same extent that was seen last year, it says.

In terms of portfolio allocation, it says that the rise of the digital consumer should gradually come to whet the appetite of investors just as much as the rise of China. “A large number of technology stocks should accordingly be labeled as favorites. In addition, equity strategists deem cyclical industrial stocks (raw materials, industrial goods and services) preferable to consumer-related stocks,” it notes.