French and German Businesses Stressed in Last One Year
- Business Companies Eurozone News
Global Business Magazine- 5 minutes read
The resilience of European businesses, particularly those in France and Germany, was tested in the last 12 months as elevated interest rates, waning consumer confidence and political instability weighed heavily on corporate performance, global professional services firm Alvarez & Marsal (A&M) said.
In its latest report entitled “A&M Distress Alert” for July 2025, the firm said that the distress has accelerated markedly in France, reaching 10.5% of all companies, up from 8.1% the previous year – an increase of nearly 30%. The percentage of underperforming businesses has also climbed, from 9.6% to 14%.
The proportion of French firms lacking balance sheet robustness remains elevated at 34%, the second highest among the European countries and up from 31.3% a year earlier. This decline in corporate financial health reflects the country’s tougher economic environment.
After contracting in the fourth quarter of 2024, economic activity is expected to decelerate strongly in 2025, held back by fiscal adjustments, trade-related uncertainty weighing on sentiment and other macro factors.
Reflecting an economy under pressure, business failures are at a historically high level, with 66,937 firms collapsing in the 12 months leading up to April 2025. This represents a 10.6% increase compared to the previous period, and remains above the 2010-2019 average.
More recently, domestic economic climate has been deteriorating, with decline in the industrial and services sectors, two key drivers of the country’s growth, the report said.
Rising costs are also placing a heavy burden on French businesses, squeezing their profitability. Many are struggling to pass these increases onto customers due to weak demand and intense competition.
Another factor has been the withdrawal of government support schemes implemented during the COVID crisis, which has left vulnerable firms even more exposed.
“According to our analysis, healthcare companies are the most troubled, with 17.3% classified as distressed. The sector continues to be heavily impacted by rising costs (salaries, energy, rents) and by the financial fragility of medical-social structures, which are significantly indebted,” A&M said.
The Media & Entertainment industry remains strained in France amid declining advertising investment, rising production costs and an overall fragile post-COVID profitability.
Germany
Corporate distress in Germany has increased steadily, reaching the highest level since the pandemic. Currently, 11.5% of German firms in A&M’s dataset were classified as distressed, highlighting the mounting economic pressures on Europe’s largest economy as it struggles with faltering global demand, high energy costs, infrastructure and competitiveness issues, as well as political instability both at home and abroad.
The proportion of firms with insufficient balance sheet robustness has surged in recent years, now representing 31.5% of all businesses, up from 25.5% two years ago. Similarly, the percentage of companies with underperforming operations has grown to nearly 18%, from 14.3% in 2022.
The sector-specific analysis reveals that specialised retail is the most distressed sector in Germany, while business services has experienced the biggest year-on-year increase in distress levels.
Retailers were facing pressures from e-commerce competitors and the need for increased digitalisation. Large online platforms were increasingly dominating even niche markets, while many specialised retailers struggle with a technological lag.
Adding to the challenges were persistently weak consumer sentiment and a challenging situation in Germany’s city centres, with declining visitor numbers and increasingly vacant spaces. Forecasts by the German Retail Association estimate 4,500 retail stores will close their doors permanently in 2025.
Distress within business services is driven by factors including skilled labour shortages, changing customer expectations and rapid digital transformation and technological disruption, including from AI.
The proportion of automotive and manufacturing companies classified as distressed has also increased. The export-oriented sectors continue to struggle due to rising energy costs, global competition and a drop in demand in key markets. These pressures have been compounded by the threat of tariffs more recently.
