• The United Kingdom remains the third most distressed market measured by the WEDI index

(Press Release – Europe – Wednesday 15 July 2026): Corporate distress across Europe increased during the second quarter of 2026, according to the latest Weil European Distress Index (WEDI), as the modest improvement seen earlier in the year gave way to a more challenging economic backdrop marked by weaker growth, fragile confidence and renewed energy-market uncertainty.

The latest data shows that distress rose across every market measured between February and May, reversing the easing recorded in the previous quarter and leaving overall distress above its long-run average. The findings suggest that many European businesses are entering the latest period of geopolitical and energy-market volatility from an already fragile position.

Whilst the full impact of the conflict in the Middle East has yet to be reflected in company results, the disruption has significantly darkened the economic outlook. Higher energy costs, inflationary pressures and increased uncertainty around the path of interest rates risk adding further strain to businesses already facing pressure on margins, liquidity and investment.

Profitability is now the single largest driver of distress across Europe, reflecting the combined impact of softer demand, elevated operating costs and growing uncertainty around future trading conditions. The International Monetary Fund now expects Euro Area GDP growth of 1.1% in 2026, down from its previous forecast of 1.3%. Whilst financial markets have remained comparatively resilient, supported by expectations of potential policy support and energy-market normalisation, the latest WEDI data suggests that company fundamentals are already coming under increasing pressure from higher costs, weaker demand and tighter financing conditions.

Sector trends: Q2 2026 data and outlook

Retail and Consumer Goods recorded the largest increase in distress during the quarter and remains by far the most distressed sector measured by the WEDI. On a rolling basis, distress reached its highest level since the global financial crisis in the latest quarter.

The latest data points to a broad-based squeeze across profitability, liquidity, investment and valuation. Weak consumer confidence, softer discretionary spending and rising operating costs continue to weigh on the sector, whilst renewed pressure from energy and transport costs threatens to further erode margins.

Industrials remains the second most distressed sector, although distress remains lower than a year ago. The latest increase suggests that signs of stabilisation seen earlier in 2026 remain fragile. Weak investment conditions, subdued demand and a challenging export environment continue to weigh on manufacturers. The war in Iran has compounded these pressures by increasing uncertainty around energy costs, supply chains and global demand, leaving energy-intensive businesses particularly exposed.

Infrastructure, Utilities and Power recorded one of the sharpest deteriorations in the index, rising to become the third most distressed sector. Growing pressure on investment, liquidity and risk suggests financing conditions and project economics have become more challenging, whilst delayed procurement decisions and uncertainty around energy markets continue to weigh on capital-intensive operators.

Travel, Leisure and Hospitality also recorded one of the largest increases in distress during the quarter. Whilst overall distress remains below its long-run average, higher wage costs, weaker consumer confidence and growing exposure to geopolitical disruption are beginning to weigh on profitability and liquidity. As higher fuel costs feed through to company results, distress is expected to continue rising in the months ahead.

Andrew Wilkinson, Partner and Head of Weil’s London Restructuring practice, said:

“European businesses entered 2026 expecting operating conditions to improve gradually. Instead, the outlook has become more uncertain. Distress is now rising across every market we track, profitability has emerged as the biggest source of pressure and the prospect of lower interest rates looks less certain than it did at the start of the year.

One of the more striking features of the current environment is the disconnect between market sentiment and underlying company fundamentals. Equity markets have proved remarkably resilient and credit markets remain relatively stable, reflecting expectations that the disruption caused by the war in Iran will prove temporary and that policymakers will ultimately be able to support growth.

The WEDI points to a different picture beneath the surface. Many businesses are already absorbing higher energy and operating costs, while profitability, liquidity and investment continue to deteriorate. If inflation proves more persistent, interest rates remain higher for longer and energy prices take longer to normalise, markets may need to reprice those risks more fully.”

Country trends: Q2 2026 data and outlook

Germany remains the most distressed market measured by the WEDI. Although overall distress remains below year-ago levels, it increased during the latest quarter and continues to be driven by profitability, liquidity and investment pressures. Germany’s dependence on manufacturing, exports and energy-intensive industries leaves businesses particularly exposed to weaker demand and higher input costs. Corporate insolvencies reached their highest level since 2014 in 2025 and could rise further during 2026.

France remains the second most distressed market and is the only market measured by the WEDI where overall distress is higher than a year ago. Pressure remains concentrated in profitability, liquidity and investment, whilst valuation metrics have deteriorated markedly in recent months. Corporate bankruptcies have reached their highest level since the early 1990s, underscoring the increasingly challenging backdrop facing French businesses.

The United Kingdom remains the third most distressed market measured by the WEDI. Pressure is concentrated in investment, liquidity and profitability, whilst a softening labour market and persistent cost pressures continue to weigh on business confidence. The IMF recently reduced its UK growth forecast for 2026 from 1.3% to 0.8% – the largest downgrade amongst the markets covered by the index. The recent resignation of Prime Minister Keir Starmer and subsequent change of government introduces further uncertainty at a time when growth expectations are already weakening, raising the risk that business confidence and investment activity remain subdued over the medium term.

Spain and Italy remain the least distressed markets measured by the WEDI, although distress has risen modestly since the start of the year. The combined index continues to mask a divergence between the two economies. Spain remains one of the strongest performers in Europe, supported by stronger domestic growth, whilst Italy faces a weaker outlook shaped by lower productivity growth, fiscal constraints and softer external demand. Despite comparatively stronger fundamentals, the rise in distress across both markets reinforces the broader trend of pressure building across Europe.