As always, three key factors will continue to determine the strength of economic activity in these erstwhile basket cases of the euro area economy. These factors are jobs, incomes and credit costs.



The labor market situation in France is not good. The unemployment rate in October stood at 10.8 percent, slightly higher than in the same month of last year, even though most of the new employment contracts were for part-time or temporary work. In spite of that, the real disposable income is estimated to have risen 1.7 percent this year, and a further increase is expected next year as the government steps up work on the "feel-good factor" for general elections in May 2017.

Italy did much better on employment growth: The jobless rate was cut by nearly two percentage points in the year to October to 11.5 percent. But that is still nearly double the pre-crisis unemployment rate of 6.1 percent. The center-right parties are gaining ground on the Socialist government. The pressure is on to cut taxes to rev up economic growth and job creation.

How much of that will actually happen is not clear at this point, but the planned fiscal easing is expected to accelerate the growth of the real disposable household income to more than 3 percent next year from an estimated 1.3 percent this year.



Spain is in an entirely new, uncharted territory after recent general elections, where traditional right and left parties lost to political upstarts in search of radical economic and socio-political changes.

But whoever succeeds in forming the new government will inherit good growth and employment dynamics. The current unemployment rate of 21.6 percent was brought down by 2.4 percentage points in the year to October, mainly through part-time, temporary and "gray economy" employment. This has led to complaints of a new class of working poor, but at least these people now have some income and don't have to rely on charity for survival.

As an aside, you may wish to wonder about these dire socio-economic statistics in Spain, because they are difficult to square with the country's buoyant retail sales, and an estimated 3 percent increase in private consumption this year – substantially above the Germany's and euro area estimates of 1.7 percent and 1.9 percent, respectively.