One in fifteen European companies is under significant pressure to restructure this year, driven by higher financing costs and declining consumer demand. Germany, Austria, and the Nordic countries are particularly affected, according to a recent report by Boston Consulting Group (BCG).
BCG’s findings reveal that around one-third of businesses in Germany and Austria are experiencing what the firm calls “transformation pressure,” indicating early signs of weakening performance and financial instability that necessitate improvement. This figure contrasts with the broader European average of 21%, which has risen from 14% in 2023.
Higher interest rates have particularly weakened capital-intensive sectors like telecommunications and industrials,
says BCG’s report The pressure on companies in Austria and Germany is partly due to the structural characteristics of their sectors. Jochen Schönfelder, a senior partner at BCG in Cologne, attributes this to high exposure to China and Russia, as well as to energy-intensive industries. Additionally, these countries have been severely impacted by a “consumer crisis,” with reduced demand for fashion and other consumer goods.
Across Europe, real estate, telecommunications, media, technology firms, and retail are the most stressed sectors. Approximately 68% of real estate companies are showing early signs of strain, a significant increase from around 26% in 2023, according to BCG.
The data underscores the lingering effects of rapid central bank interest rate hikes and soaring raw material and energy prices following Russia’s invasion of Ukraine. Although there are signs of economic recovery in Europe, financing costs are expected to remain high, with markets only fully pricing in about two rate cuts from the European Central Bank this year.
Higher interest rates have particularly weakened capital-intensive sectors like telecommunications and industrials, according to BCG. Additionally, industrial companies across Europe face continued competition from countries such as China and need to invest in their businesses to comply with regulations like the EU Green Deal.
Lenders are opting for amend-and-extend transactions, which delay debt maturity and adjust some terms,
explains Jochen Schönfelder of BCG The retail sector is also facing increased risk sensitivity from banks, leading to limited availability of debt and equity for developing retail real estate. This sector is also grappling with challenges such as increased labor costs and supply chain disruptions.
Despite the mounting pressure, the anticipated number of debt restructuring processes has not materialized. Schönfelder explains that this is partly because lenders are opting for amend-and-extend transactions, which delay debt maturity and adjust some terms. However, he cautions that this merely postpones the problem, which will need to be addressed when the new maturity dates are reached.
