The index, which tracks corporate distress across major markets, highlights that these sectors saw the sharpest rise in distress during the second quarter of 2026, outpacing all other industries in Europe.
Between February and May, distress across all markets and sectors measured by WEDI increased, reversing earlier-year optimism.
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The new data indicates that the retail and consumer segments remain the most troubled, as companies contend with weak consumer confidence, reduced discretionary spending, and higher operating costs.
The report points to an across-the-board squeeze on profitability, liquidity, investment, and valuation, with renewed pressure from energy and transport costs threatening already-stretched margins.
“The latest data points to a broad-based squeeze across profitability, liquidity, investment and valuation,” the WEDI report stated, attributing much of the sharp decline in the retail sector to declining consumer sentiment and cost-driven margin compression.
These pressures have intensified as businesses face ongoing uncertainty around energy markets and inflation. The wider European economic environment also remains challenging, with geopolitical instability and fluctuating energy prices compounding pressures.
According to the report, the full impact of the conflict in the Middle East is not yet fully reflected in company financials, but the associated disruptions have already dampened the outlook for business and consumer spending. The sector’s struggles have become a significant driver of increased distress across the continent.
Outside the retail and consumer sectors, the industrial segment remains the next-most distressed, though overall pressures there are currently less severe than those within retail.
However, manufacturers continue to face subdued demand, weak investment conditions, and increased uncertainty over energy costs, particularly for energy-intensive businesses. The ongoing conflict in Iran has added to industry concerns by heightening volatility in supply chains and global demand.
Wider trends captured by the WEDI show that profitability is now the largest single factor driving business distress across Europe, reflecting softer demand, persistently high costs, and growing uncertainty about future trading conditions. The International Monetary Fund has revised its forecast for Euro Area GDP growth in 2026 downward, from 1.3% to 1.1%, suggesting that difficult operating conditions may persist.
Weil London Restructuring practice partner and head Andrew Wilkinson said: “Distress is now rising across every market we track, and profitability has emerged as the biggest source of pressure. One of the more striking features of the current environment is the disconnect between market sentiment and underlying company fundamentals. Many businesses are already absorbing higher energy and operating costs, while profitability, liquidity, and investment continue to deteriorate.”
At a national level, Germany recorded the highest overall level of corporate distress among the markets measured, followed by France and the UK.
While both Germany and France have seen distress grow, the UK’s outlook has weakened further following a downgrade in economic growth forecasts by the International Monetary Fund, cut from 1.3% to 0.8% for 2026, as well as increased political uncertainty after the recent government change.
Spain and Italy remain the least distressed markets in the region, though both have seen modest increases in distress. According to the report, Spain continues to outperform peers due to stronger domestic growth, whereas Italy’s outlook is dampened by weak productivity and fiscal constraints.
Nonetheless, even these more resilient markets are beginning to face pressures similar to those confronting the rest of Europe’s corporate sector.
The report concludes that, while financial markets may appear stable, underlying fundamentals in key sectors, particularly retail and consumer goods, are under increased strain.
If inflation and energy turbulence persist, many businesses may struggle to recover, and broader distress across the corporate landscape could intensify further.
