(Bloomberg) -- Levels of stress at German companies hit the highest level in almost four years, as Europe’s biggest economy faces a sustained period of slower growth. 

German corporate distress was the highest since 2020 at the start of this year, according to research published on Thursday. That puts it ahead of the UK, France, Spain and Italy, when it comes to companies facing difficulties, as its large manufacturing sector wrestles with cost inflation. The study, by law firm Weil, Gotshal & Manges, aggregates data from more than 3,750 listed European firms. 

“Germany has always been in my working lifetime the strongest performer in Europe, and the UK has been a been a laggard. That is now not true,” Andrew Wilkinson, senior European restructuring partner at Weil, said on Bloomberg Radio. “The rise in the European distress index this quarter is accounted for by Germany, and that’s a story about industrials.”

Germany is encountering a number of headwinds, including the cutoff of cheaper Russian energy supplies, weak Asian demand for exports, as well as higher interest rates. Its outsized manufacturing sector has been feeling the strain, with output and new orders both declining. The country is in recession and its economy will hardly grow this year, according to a Bloomberg survey conducted last month, with the nation’s Economy Ministry warning any upturn is not expected until much later in 2024.

Among sectors in Europe, real estate remained the most distressed of all of the industries the Weil report examines, as higher interest rates and falling investment pose problems for landlords. 

The downturn has been particularly severe in Germany, where a number of high profile collapses and concerns over lending have weighed on the sector. Investor appetite for German property deals remained low in the first quarter of this year, according to a report from broker Jones Lang Lasalle.

Read more: Germany’s Slow-Motion Property Crash Is a Looming Risk for Banks 

Elsewhere in Europe, concerns over the valuation of offices have weighed heavily on the property sector. From Paris to London’s Canary Wharf, many workplaces have struggled with increasing debt burdens amid a switch to hybrid working practices. 

The idea that “European real estate is the most most distressed sector has been around for a while, people know it, and we are seeing the consequences of that play out,” Wilkinson said. “Our view is that it will continue unless there’s a sharp fall in interest rates.”

(Updates with quote from Andrew Wilkinson in third and final paragraphs.)

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