One in 15 European companies is facing restructuring pressures, with Germany, Austria and the Nordic countries leading the way.

Consulting firm BCG said in a presentation on Monday that about a third of companies in Germany and Austria are facing what it called “transformation pressures” — early signs of weakening performance and financial stability that need to be improved — compared with about 21% across Europe, up from 14% in 2023.

The company collected financial information from more than 2,000 listed European companies and relied on company statements and interviews.

The pressure on Austria and Germany comes partly from “the structure of the sector,” said Jochen Schönfelder, a senior partner at BCG in Cologne. “Firstly, their high exposure to China and Russia, and secondly, their high exposure to energy-intensive industries.” Schönfelder also noted that the two countries are particularly affected by the “consumer crisis,” with demand for fashion and other items falling.

Real estate, telecommunications, media, technology companies, and retail are the three most stressed sectors across Europe, with around 68% of real estate companies showing these early signs of stress, up from around 26% in 2023, according to BCG.

The data highlights that the continent is still facing the effects of sharp rises in central bank interest rates, as well as soaring raw material and energy prices after Russia’s invasion of Ukraine. Despite signs of economic recovery in Europe, funding costs are expected to remain high and markets are finally pricing in the full effects of two interest rate cuts by the European Central Bank this year.

Higher Rates

The report said rising interest rates were the main driver of the weakening of capital-intensive sectors such as telecommunications and industry, adding that industrial companies across Europe face ongoing competition from countries such as China and need to invest in their operations to adapt to regulations such as the EU Green Deal.

According to BCG, banks are becoming more risk-aware in the retail industry and there is limited debt and capital available for retail real estate development, coupled with other headwinds including rising labor costs and supply chain disruptions.

But despite the pressure, there have been fewer restructurings than expected, Schoenfelder said, in part because lenders have been willing to do modification and extension deals that push out debt maturities and adjust some of the terms.

“In a lot of refinancing situations, companies and creditors are just trying to postpone the problem,” Schonfelder said, adding that issues still need to be addressed when the new maturity dates arrive.