An index tracking corporate distress has showed that industrials have remained the second most distressed sector amongst heavy geopolitical stresses and economic disruption worldwide.
Stronger manufacturing activity and export demand have provided some support through the unforeseen circumstances, according to the Weil European Distress Index.
However, profitability and investment remain under strain, as higher energy costs and tighter credit conditions continue.
Meanwhile infrastructure, utilities and power remain the third most distressed sector, having risen sharply in the rankings since last year.
Investment and risk have been identified as the main sources of distress. It also appears that higher project costs and uncertainty around delivery are driving the high risk and lack of money filtering in.
Regionally, the UK economy has proved more resilient than anticipated by the reports but financing costs remain a significant source of pressure, particularly for smaller businesses.
Andrew Wilkinson, Partner and Head of Weil’s London Restructuring practice, said: “The latest data suggests businesses have absorbed the first wave of geopolitical and economic disruption better than many expected. But resilience should not be mistaken for recovery.
“Distress remains above normal levels, and financing conditions are still challenging. If borrowing costs remain elevated while demand and margins stay under pressure, we could see this continued level of distress begin to feed through into higher default rates across Europe.”
The latest data points to resilience rather than recovery. European businesses have so far weathered the initial economic and market disruption from the ongoing Middle East conflicts better than feared, against a backdrop of stronger economic activity and relatively resilient financial markets.
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