EAST CAPITAL SUMMIT, Prague 8 September: Clear skies

"Economies [in the CEE region] are going from recovery to solid growth, although at a more balanced and sustainable pace," he said. "One of the exciting themes is the catch-up process to Western Europe levels and we are getting back to that." 

Even so, Bengt Dennis, a former governor of the Swedish central bank who sits on East Capital's advisory committee, said "we are still not back to the future."

Dennis said that most markets are not back to full capacity; in many cases the markets are nearing growth rates of the past, but some are lagging and will take more time to get back there. He also said that while these economies look robust in the sense the statistics are strong, "domestic demand is still very, very weak and a real broad-based recovery will have to wait for a few reasons."

Those reasons include the need for continued tight fiscal policies to reduce debt and bring budget deficits down; unemployment is still high and job growth is slow; household balance sheets are weak; and demand for credit is still slow. "It will take time to correct the imbalances," he said.

For the investor, though, the important point is not to wait for that broad-based recovery to arrive and an economy running at full capacity before investing, because he or she will run the risk of missing out on the superior returns. "The stock market tends to be six to 12 months ahead of the real economy."

Within the region, Dennis pointed out that those countries that went into the downturn with a good track record of running their economies have tended to recover much quicker, Poland being a prime example, which with some good luck but also good policies managed to avoid going into recession. At the other extreme are the Baltic countries, whose economies had grown too fast with too many imbalances and so the recovery has been more drawn out.

Even so, the Baltics should take some credit for addressing the problems head on, especially Estonia, which adjusted quickly and is now due to join the euro from next year. "Latvia won’t be back to 2007 GDP growth levels until 2015 or so, there will be many lost years for Latvia," said Dennis.

Looking at Central Europe, some of the latest data is at levels that could be called "booming" – for example, industrial production growth numbers are strong partly because Germany is growing well, but also because of the low base, since output dropped so sharply during the crisis. "Domestic demand is still weak, though exports are growing quite briskly," said Svedberg.

By contrast, Turkey is one of the least export-dependent economies in the region but is benefiting from strong domestic demand from its young and growing population, which is driving the economy and the stock market is reaching all-time highs this year. "I can't help but be impressed by how Turkey has acted during the crisis," said Svedberg.