Corporate distress in Europe has risen significantly over the past year, with more than 1 in 8 corporates now facing some kind of financial challenges. That is according to research from Alvarez & Marsal.
Alvarez & Marsal’s report assessed the financial performance and balance sheet robustness of more than 4,500 companies across Europe and the Middle East, finding that corporate distress in Europe has risen by 57% year-on-year, with 13.5% of European corporates in distress. This marks the highest level since 2022.
The analysis also shows a 53% year-on-year increase in companies experiencing weakening performance, equal to nearly 20% of companies. This reflects mounting pressure on companies’ topline growth and profitability, caused by sluggish economic growth, slowing sales thanks to lower consumer confidence, geopolitical tensions and tariff headwinds.
The number of companies with weak balance sheets has reached 36%.
In Alvarez & Marsal’s methodology, it is the combination of these two factors – performance (income‑statement based) and robustness (balance sheet strength and liquidity) – that determine the level of ‘distress’.
Chris Johnston, Managing Director at Alvarez & Marsal said: “Corporate distress is becoming more entrenched across Europe. The cumulative impact of cost pressures, fragile consumer demand, and geopolitical and trade instability is exposing the underlying balance-sheet weaknesses of European corporates and increasing their vulnerability to external shocks.”
Sectors under stress
Across Europe, distress remains concentrated in sectors exposed to discretionary spending and international supply chains. Fashion and specialised retail, manufacturing, and chemicals sectors experienced the highest levels of distress, with around 17% of businesses in distress, followed by automotive, business services and construction, with around 15% of companies in distress.
The chemicals sector saw the largest increase in distress, up 55% year-on-year, reflecting continued headwinds from weak demand, elevated energy costs and competitive pressures from China.
Key markets
In the UK, levels of corporate distress have risen to 9%, with the proportion of companies in distress increasing 27% year-on-year. The proportion of UK companies experiencing deteriorating earnings has jumped sharply to 16% from 9.8% the year before, while a third of companies (33%) are lacking sufficient balance sheet robustness.
Italy showed the highest proportion of distress (18%) and the biggest year-on-year increase in Europe, from 9.3% to 18%, as weak consumer demand and rising labour and input costs squeeze margins.
Elsewhere, France continues to rank among the top distressed markets, with 16% of companies in distress and 41% lacking robustness. In Germany, distress levels jumped to 14.8%, with 40% of firms lacking robustness and 21.5% lacking performance, amid continued economic stagnation.
The outlook?
Looking ahead to 2026, Johnston said that distress levels are expected to remain elevated, with the ongoing conflict in the Middle East and its implications likely to weigh heavily on the economic outlook in the year ahead.
For a growing number of companies, this pressure may push financial distress into financial restructuring or even crisis management. “Access to financing remains limited for companies with weaker capital structures and business models, pointing to a likely increase in restructuring activity as firms take steps to address structural challenges and reposition themselves for longer-term resilience.”