Well, Angela Merkel is popular despite the crappy economy in Germany. Sarkozy is still popular and Berlusconi would be if not for non economy related crap. Jennifer Granholm was reelected in 2006 despite the Michigan economy already sucking because people were even more afraid of that Amway guy. The UK economy wasn't so hot in 1992. So I mean, the economy is not insurmountable. If the other side doesn't have a program and you can convince them that you're more competent, or that you're on their side while the other side is controlled by fat cats, you can still come out ahead.
Don't forget the popularity of Zapatero in Spain, with ridiculous unemployment rates they are having right now. Yeah though an incumbent victory with a terrible economy is very possible, just as an opposition victory with a good economy is very possible.
