The latest Weil European Distress Index (WEDI) indicates a rise in corporate distress across Europe as of February 2025, reaching its highest level in six months. Germany and the UK have experienced particularly sharp increases, contributing to the upward trend. Distress levels have now risen in four of the past five months, driven by declining confidence and heightened volatility. Whilst the markets component has provided some relief, its impact has been outweighed by other factors.
Regional spotlight
- Germany: German corporate distress has surged to its highest level since July 2020, the height of the pandemic, driven by weak investment, poor profitability and falling valuations. This rise is compounded by a steep decline in exports and manufacturing output, economic contractions, weakening domestic consumption and pressures on trade, adding further uncertainty.
- Whilst the WEDI had forecast a rise in distress for the country in 2025, the latest data indicates a faster and sharper downturn than initially expected.
- United Kingdom: Distress levels in the UK have also risen, with levels at their highest since September 2023. Growing fears of a deteriorating economic outlook have shaken investor and consumer confidence, contributing to tighter liquidity. Concerns around investment have also likely heightened following changes in Employee National Insurance Contributions and the National Living Wage.
- The outlook for the UK has worsened since the last report, with uncertainty remaining a key challenge. Economic forecasts, including those from the Bank of England, have grown increasingly pessimistic, further weighing on confidence and stability.
- France: Corporate distress has reached its highest level since August 2020, mirroring broader trends across Europe. Economic stagnation and declining consumer confidence have tightened liquidity and slowed investment.
- Whilst there are signs of stabilisation, business confidence and resilience are likely to remain under pressure, with concerns over the construction sector and political uncertainties continuing to dampen optimism.
- Spain & Italy: Unlike other regions, Spain and Italy have shown considerable resilience. Although distress levels saw a marginal quarterly rise, they have eased on a year-by-year basis. Strong underlying economic factors, including robust personal consumption and tourism, have helped both countries – particularly Spain – withstand the economic pressured that have weighed on their northern neighbours.
- However, a divergence is beginning to appear within the region, with Italy’s economy appearing slightly more subdued. Its greater reliance on manufacturing in has made it more susceptible to the geopolitical headwinds impacting the sector.
Sector spotlight
- Industrials: The Industrials sector has seen a significant rise in distress over the first quarter of 2025, with levels now at their highest since October 2020, driven in part by severe investment pressures. Germany, with its export-led economy, remains the engine room of European industrial distress, amidst falling global demand. Elevated capital costs have also placed even greater pressure on the sector.
- Real Estate: Whilst still the second-most distressed sector, Real Estate has seen some easing compared to the previous quarter and year. Stabilising property valuations and adjustments to refinancing costs have contributed to this, but the primary driver of distress remains profitability. Highly leveraged companies continue to face refinancing challenges due to high interest rates and increasing pressure on profits.
- Retail & Consumer Goods: Distress for the Retail and Consumer Goods sector is now at its highest level since October 2014. Significant global uncertainty, fears of economic slowdown and existing pressure on the cost of living has taken a toll on consumer spending. This has been reflected in poor investment and liquidity metrics, as well as in declining profitability throughout the sector.
Looking ahead
- As global and regional challenges continue to evolve in the coming months, businesses will need to stay agile to navigate uncertainty. The shifting geopolitical landscape, however, presents an opportunity for significant investment in defence and other industries, potentially providing much-needed relief to struggling manufacturers. Despite this, the ongoing reorientation of global trade is expected to place sustained pressure on all sectors as the year unfolds.