Dutch economic growth slows as weak companies stay in the market, economists warn

The pace of economic renewal in the Netherlands has slowed, according to a new report from the Centraal Planbureau (CPB), the government’s main economic advisory agency. The analysis shows that underperforming companies are being replaced less frequently by innovative, high-performing firms, weakening the engine of Dutch growth.

Creative destruction, the process by which older, less innovative activities are replaced by new, innovative ones, is at the heart of economic growth, the report explains. CPB experts found that this process in the Netherlands, as in many other countries, has begun to falter.

“This is concerning, because this process is the engine behind economic growth and prosperity in the Netherlands,” CPB experts said after reviewing data from 2007 to 2023.

The study shows that fewer new firms have been started since 2008, and fewer employees now work in young companies. The slowdown is widening the gap between leading and lagging firms. Top-performing companies retain their leading positions longer, while followers and potential entrants increasingly struggle to catch up. Innovation efforts are becoming more concentrated among larger, older firms, while new entrants contribute relatively little, the report said.

To restore economic dynamism, the CPB suggested easing bankruptcy laws to allow unviable companies to exit faster. Workers who lose jobs at failing firms could then find positions at more productive companies, supporting growth. Reducing regulatory burdens, improving access to credit, and investing in education are additional recommendations.

“Well-educated workers are more productive and can adopt new technologies more quickly,” the CPB added.