Scope Ratings forecasts that corporate defaults will ease in the second half of 2025 and through 2026, supported by the region’s gradual return to more robust GDP growth after two years of stagnation. Scope forecasts 1.5% growth in the euro area for next year, 1.25% in the UK and more robust growth rates of 2%-3% in parts of Central and Eastern Europe (see also Global Economic Out-look Mid-Year 2025, June 2025).

“The credit environment remains fragile amid worrying geopolitical risks. However, the likely return of stronger GDP growth across major markets, moderating inflation and lower interest rates, easier access to funding as well as continuing consolidation in more fragmented sectors provide some comfort that we are not far from the peak in default rates and negative rating migration,” says Sebastian Zank, co-head of corporates credit production at Scope.

“The overall elevated level of corporate defaults disguises the reality that business stress remains concentrated in some countries such as France, Italy, Germany and Switzerland, in some sectors – business and consumer services, construction, retail and accommodation and food services – and among the smallest corporates,” says Zank, author of Scope’s latest report on corporate defaults in Europe.

Corporate distress concentrated among smallest firms despite high-profile failures

“In addition, while large corporate failures or selective defaults dominate the news headlines – Altice France, Claire’s, Gerry Weber, Northvolt, Signa – they remain the exception rather than the rule, even if failures of this size are running above the long-term average,” he says.

In practice, corporate distress is overwhelmingly concentrated among very small and micro-sized businesses. France provides a striking example, with the highest absolute number of corporate defaults in Europe, but almost 99% of these attributable to failed micro-sized firms.

In contrast, in several economies – including large ones such as the Netherlands, Poland, Sweden and Hungary – default rates are levelling off or improving. Overall, relative default rates remain low in most major economies such as Germany, Spain, Italy, France and the UK, typically running at less than 1% (significantly less than 100 out of 10,000 companies) a year. France stands out as the exception, with defaults edging just beyond this threshold, reflecting how very small and micro-sized firms are highly exposed to shifts in credit conditions.

Market consolidation is also continuing in the region, as the rising number of corporate defaults over the last few years (~more than 200,000 a year across the EU) is not offset by a commensurate rise in new company registrations, the level of which is stagnating though at a significantly higher level of around 1 million a year. Consolidation in the sectors with highest default rates, alongside the restructuring of defaulted companies, is gradually strengthening surviving businesses and will eventually slow down default rates.

“Stabilising or even decreasing default risk is also materialising in our ratings coverage across around 300 European corporates,” says Zank. Stability is most visible among investment-grade (IG) corporates. However, the bias remains towards negative ratings migration in the high-yield rating spectrum.

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