Corporate distress levels in the UK have stabilised in the first quarter of 2024 but Germany remains the continent’s “most distressed market”, new research shows.
According to Weil’s European Distress Index, insolvency and restructuring levels in the UK were roughly in line with levels seen in the final quarter of 2023.
The survey pointed out that economic indicators for 2024 have turned more positive, raising hopes that the recession at the end of last year is likely to be “brief”.
The findings will boost confidence that the UK’s corporate sector will face fewer pressures than last year, when 25,000 firms went bust. This was a thirty year high.
However, Weil still warned that higher rates would be an issue for corporates. “The persistently high-interest-rate environment remains a source of pressure for firms, grappling with increased debt service costs, stricter refinancing conditions and diminished demand,” the survey noted.
Interest rates peaked at 5.25 per cent last August and markets think the Bank of England will start easing the cost of borrowing this summer, which has eased pressure on businesses.
Although corporate distress was stabilising in the UK, the survey showed levels of distress were increasing across Europe.
The survey analyses data from over 3,750 listed companies and economic indicators across the continent. It showed that capital-intensive and highly leveraged were the most likely to face pressure.
“With the current macroeconomic indicators presenting a more nuanced picture than previous forecasts, we can expect capital-intensive and highly leveraged businesses to continue to feel pressure,” Andrew Wilkinson, co-head of Weil’s London Restructuring practice, said.
“Those operating in the industrials, retail and real estate sectors are bearing the brunt of these pressures,” he continued.
Germany continued to be the “most distressed market” in Europe. The continent’s largest economy has struggled to generate any momentum since the Russian invasion of Ukraine, with higher energy prices hammering its dominant manufacturing sector.
The German economy shrank 0.3 per cent in 2023 and the government only expects it to grow 0.2 per cent in 2024, well below its previous forecast of 1.3 per cent.
“Germany’s industrials sector is particularly strained by high interest rates, skilled labour deficits and extensive regulations, leading to more insolvencies,” the survey said.