Economic activity in the euro area picked up in the latter half of last year and will maintain its momentum in the first few months of this year, European Central Bank President Jean-Claude Trichet said today.

'According to the information available, real gross domestic product growth did indeed improve in the second half of 2005, as we expected,' Trichet told a news conference in Frankfurt after the ECB held its key interest rates steady at 2.25%.

The latest estimates put area-wide growth at 0.6% in the third quarter of last year, faster than the 0.4% recorded in the second quarter.

'Recent economic indicators and survey data support the view that the expansion of economic activity broadly maintained its momentum in the fourth quarter of 2005 and will continue to do so in the first months of 2006, notwithstanding the impact of high oil prices,' Trichet said.

The conditions 'remain in place for sustained growth of economic activity,' he continued. 'On the external side, the continued strength of global demand should support euro area exports'.

'On the domestic side, investment should further benefit from continued very favourable financing conditions, robust corporate earnings and gains in corporate efficiency. Consumption growth should gradually rise, broadly in line with expected developments in disposable income,' he said.

But he warned that there were downside risks to the growth scenario, namely 'high and volatile oil prices, concerns about global imbalances and the level of consumer confidence in the euro area.

IIB economist Austin Hughes said Mr Trichet's remarks hinted at differences of opinion on rates within the ECB's Governing Council, but still signalled another increase in rates, probably in March.