KfW Research: Financial position of municipalities in Germany has deteriorated further

• 36 per cent of municipalities describe their financial situation as “poor”
• Larger cities are most affected
• Gloomy outlook on the future

The financial position of municipalities in Germany has deteriorated significantly again in the past two years. Preliminary findings of the KfW Municipal Panel 2025 have revealed that 36 per cent of municipalities rate their financial situation in the 2024 fiscal year as “poor”. That is two percentage points more than a year ago and even eight percentage points more than in 2022.

A further 24 per cent of municipalities report that their financial position last year was merely “adequate”, two percentage points more than in 2022. Only four in 10 municipalities describe their situation in 2024 as “satisfactory” or better, whereas that was still half of municipalities two years ago.

It was found that the share of municipalities that describe their situation as “poor” grows with an increasing population. Whereas that share is 34 per cent of small municipalities with 2,000 to 5,000 inhabitants, it is 56 per cent of cities with more than 50,000 inhabitants.

Municipal treasurers are not optimistic about the future either, with 84 per cent expecting a “rather bleak” or “very bleak” budget situation in the current 2025 fiscal year. That is roughly as many as in the previous year. The share of municipalities expecting a “rather” or “very bleak” financial situation in the coming five years sits at 91 per cent, which is on the same level as in the previous year but significantly higher than two years ago.

In addition, there has been a significant shift in the group of pessimists. The share of municipalities that expect a “very adverse” development in the medium term increased by 14 percentage points on the previous year, while the share of municipalities with a “rather adverse” outlook 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”,

said Dr Dirk Schumacher, Chief Economist of KfW.

“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.”

The analysis can be found at Focus on Economics | KfW

The KfW Municipal Panel is an annual representative survey of municipal treasuries which the German Institute for Urban Affairs (Difu) has conducted on behalf of KfW since 2009. In the first quarter of 2025, a total of 2,839 municipalities with more than 2,000 inhabitants were surveyed, with a response rate of 34 per cent. KfW plans to present all findings of the KfW Municipal Panel 2025 at the end of June.

KfW supports municipalities with a number of promotional programmes on behalf of the Federal Government. Further information is available at Public Institutions | KfW.