Even before the latest bout of political and economic turmoil, by one measure France had become Europe’s most distressed corporate market.

The French republic overtook Germany as Europe’s most distressed market, according to the latest reading of the Weil European Distress Index (WEDI), a proprietary gauge from Weil Gotshal & Manges. While business sentiment improved slightly in Germany during the three months through August, it was little changed in France, propelling the troubled nation to the top spot.

The data were collected before the latest bout of political unrest and surge in French government borrowing costs, meaning the index may not yet fully reflect the recent deterioration.

“France is now the most distressed market in the WEDI,” Céline Domenget-Morin, Partner at Weil in Paris, said. “The pressure is being felt by businesses themselves, with profitability under particular strain and companies also finding it harder to attract investment.”While corporate distress in France held steady for the three months ending in August, the country’s new top slot in the rankings comes amid a host of concerns for its government, including a fiscal debt squeeze as bond yields threaten to push up corporate borrowing costs. The country has also been wracked by student unrest.

“Growth has stalled and unemployment is at its highest level since 2020,” Domenget-Morin said. “For businesses already under financial pressure, there is little room for conditions to become more challenging.”More broadly, corporate distress across Europe eased slightly as ofthe quarter ended in August, falling to 2.7% from 2.8% in the May period though it remains above its long-term average. The index uses a quarterly reporting cycle ending in February, May, August and November, rather than calendar quarters.

The gauge, which is compiled with data from over 3,750 listed European companies, defines corporate distress broadly, capturing pressures including weaker liquidity and profitability, rising insolvency risk, falling valuations and lower returns on investment, alongside measures of financial-market stress.

Default rates across Europe face an ongoing challenge from rising borrowing costs, combined with weak demand and squeezed margins, according to Andrew Wilkinson, a partner at Weil and co-head of the firm’s restructuring practice.

“The latest data suggests businesses have absorbed the first wave of geopolitical and economic disruption better than many expected,” Wilkinson said. “But resilience should not be mistaken for recovery.”For Germany, improving business confidence and stronger manufacturing and export activity enabled the largest economy in Europe to shed its top spot in the survey, Corporate distress among UK businesses also eased during the quarter, although the country remains Europe’s third-most distressed market and financing costs continue to constrain the recovery.

Across Europe, retail and consumer goods remain by far the most distressed sectors amid uneven discretionary spending and higher energy and financing costs. Credit stress in Europe’s travel, leisure and hospitality sector also rose sharply, as higher fuel, wage and energy costs squeezed margins and geopolitical disruption added to the uncertainty.