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Corporate distress has stabilised in Saudi Arabia and the United Arab Emirates but the number of underperforming companies is rising, according to a new report.

Alvarez & Marsal’s bi-annual Distress Alert (ADA) released Wednesday found that while the two Middle Eastern countries have shown resilience compared to European markets, persistent inflation and supply chain disruptions are squeezing profit margins.

“Despite some stabilisation in corporate distress levels, the Middle East is not immune to broader economic challenges,” said Paul Gilbert, managing director and co-head of Alvarez & Marsal in the Middle East. “Persistent inflation and stubborn interest rates are putting significant pressure on corporate performance and balance sheet robustness.”

The report assessed the financial health of more than 8,200 companies across the Middle East and Europe. It found that while the region has seen an increase in companies lacking performance, distress levels remain lower than in many European countries, including the Benelux, UK, Germany, and Nordic nations.

Gilbert attributed the region’s relative strength to the adaptability of Middle Eastern businesses in the face of economic pressures.

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