The financial state of German municipalities has continued to decline, as indicated by the preliminary findings of the KfW Municipal Panel 2025. According to the report, 36 percent of municipalities described their financial situation for the 2024 fiscal year as "poor." This marks an increase of two percentage points from last year and eight percentage points from 2022.
Additionally, 24 percent of municipalities reported their financial condition as merely "adequate," a rise from two years ago. Only about four in ten municipalities rated their situation in 2024 as "satisfactory" or better, down from half just two years prior.
The data also revealed that larger cities are particularly affected. While 34 percent of small municipalities with populations between 2,000 and 5,000 described their financial status as "poor," this figure rose to 56 percent for cities with over 50,000 inhabitants.
Municipal treasurers hold a pessimistic view on future finances. A significant majority—84 percent—anticipate a "rather bleak" or "very bleak" budget situation for the current fiscal year of 2025. The same sentiment extends into the medium-term outlook, with 91 percent predicting a challenging financial environment over the next five years.
Notably, there has been a shift among those expressing pessimism. The proportion expecting a "very adverse" development increased by 14 percentage points compared to last year, while those foreseeing a "rather adverse" scenario decreased by 11 percentage points.
"The financial outlook of municipalities has clouded over again, and significantly. The financial uncertainty makes it likely that municipalities will cut back their investment activities," stated Dr Dirk Schumacher, Chief Economist at KfW.
He further commented on potential solutions: "The Special Fund for Infrastructure adopted by the Federal Government can help to clear the investment backlog that has accumulated. At the same time, however, the numerous structural financing challenges which municipalities are facing must be urgently addressed."
Conducted annually since 2009 by Difu on behalf of KfW, the KfW Municipal Panel surveys municipal treasuries across Germany. In early 2025, responses were collected from over 2,839 municipalities with more than 2,000 residents at a response rate of 34 percent. Complete findings are expected to be released at the end of June.
KfW continues to support these local governments through various promotional programs facilitated by federal initiatives.