April 30, 2021

Business dynamics during the COVID pandemic

The corona crisis has visible consequences for economic activity in the Netherlands. In 2020, 6.5% fewer businesses with at least 2 employees were established. This decline is not limited to the sectors most affected by health restrictions, such as the hotel and catering industry, as almost every sector saw a decrease in the number of starters last year. The number of business closures (including bankruptcies) of companies with at least 2 employees is about the same as before the corona crisis. This is striking because more businesses normally stop during recessions. The decrease in new startups and the lower number of exits than expected can translate into lower economic growth in the long term. This can be read in the report "Business dynamics during the COVID pandemic" that the Central Planning Bureau (CPB) has just published.
Main image

To limit the spread of the coronavirus, governments worldwide decided to implement "non-pharmaceutical interventions" such as sector closures, border traffic restrictions and an urgent advice from the government to work from home. Many people also changed their behavior, often voluntarily. Companies received economic support to absorb the extra costs and revenue declines. The consequences of these developments for companies in the Netherlands are becoming increasingly visible. Apparently, it seems that there is not much going on: in 2020 about the same number of companies were founded as in 2019.

Many of these companies, however, are self-employed. In the group of companies with at least 2 employees, there were 6.5% fewer start-ups in 2020. This decrease is not limited to the sectors most affected by health restrictions, such as the hotel and catering industry, as almost every sector saw a decrease in the number of starters last year. Only the "wholesale and retail trade" saw an increase, which is driven by self-employed people with an online earnings model.

In 2020 about the same number of companies were closed as in 2019. This is striking because during recessions more companies normally shut down - in 2009, for example, 32% more companies closed down than in the previous year. The decrease in new companies and the lower number of business exits than expected can translate into lower economic growth in the long term. New companies often come up with new or more efficient techniques, services and products. The economic disadvantage of fewer exits is that employees are less likely to switch to a more efficient company. On the other hand, partly due to the extensive economic support package, unemployment is rising less quickly. 

Contacts

Foto Fozan Fareed
Fozan Fareed +31 6 11344973 Read more
Foto Bastiaan Overvest
Bastiaan Overvest +31 6 21358951 Read more