A recovery in the euro zone economy is in full flow, but the region still has a long way to go in addressing some of its imbalances, says Silvercrest Asset Management.
"The recovery in Europe is real, and will likely continue and strengthen. But it is also fragile, and that fragility may give rise to new episodes of uncertainty, like the mini-shock that resulted from last year's Cyprus bailout," said Patrick Chovanec, Silvercrest's managing director and chief strategist, in a note titled 'Is Europe's Crisis Over?' published Thursday.
Read MoreEuro zone businesses see strongest quarter in 3 years
"More importantly, the internal imbalances that gave rise to the euro zone crisis have yet to be resolved, which places a serious limit on the contribution that Europe can be expected to make to global growth," he added.
Optimism towards the euro zone has picked up over the past year as the region showed signs of emerging from a financial crisis that started with the collapse of Iceland's banking system in 2008 and spread to Greece, Ireland and Portugal during 2009.
The euro zone economy grew 0.3 percent in the last quarter of 2013 from the previous one, after a 0.1 percent rise in the third quarter. There have been some positive signs early this year. For instance, the European Commission's economic sentiment indicator, based on what both businesses and consumers are reporting, in March rose to its highest level since July 2011.
"We're seeing signs of that [a recovery] across Southern Europe and it's early days but the worst is behind us," said Tim Condon, head of research for Asia ING Financial Markets.
Some concerns about the outlook for Europe's economy remain. One worry is inflation, which remains far below the central bank's 2 percent target. Following a European Central Bank meeting on Thursday, President Mario Draghi rejected the International Monetary Fund's call for immediate action to combat deflationary pressures and said the ECB would adopt a wait-and-see approach.
Chovanec said that some of the more encouraging signs for Europe include the fact that hard-hit countries such as Portugal and Spain have enacted tax and labor market reforms, raising competitiveness and boosting exports. Meanwhile, others such as France and Italy, have shown a determination to push through similar reforms.
Read MoreDraghi hits back at IMF as ECB holds fire
The bad and ugly
However, while there are 'good' elements to the euro zone recovery, there are also 'bad' and 'ugly' ones, Chovanec said.
In the 'bad' category, he highlighted how strict austerity measures in some countries have actually had the effect of leading to a rise in debt relative to gross domestic product. Meanwhile, unemployment still remains painfully high and is unlikely to abate any time soon.
The euro zone unemployment rate dipped to 11.9 percent in February, according to official data , dramatically higher that the U.S.'s 6.7 percent unemployment rate and Japan's at 3.6 percent.
Read MoreHow many European banks would pass US stress tests?
And in the 'ugly' bracket, Chovenac expressed a worry that that under a single currency, the euro zone would continue to be torn in two directions.
He said that that trade surpluses in Europe's largest economy Germany tend to strengthen the euro, making it harder for weaker countries to regain their competitiveness. However, a weaker euro would inflate Germany's surpluses, he added.
"Unable to fix its internal imbalances, which lay at the very heart of the 'debt' crisis, the euro zone can only grow by shifting the weight of those imbalances abroad, drawing demand from elsewhere, including the U.S.," he added.
ING's Condon said a stronger euro was a force that weaker euro zone economies would have to bear, and if anything, increases the need for reform.
"There is no easy way out for these countries. We know that supply side reforms work, they are painful, but eventually they deliver the goods and economies begin to recover," he said.
The euro traded at $1.3713 on Friday. It has appreciated about 1.7 percent since early February.