(Adds IfW forecast, French data)
By Paul Carrel and Kerstin Gehmlich
BERLIN, Dec 22 (Reuters) - German consumer morale should hold steady going into 2009 as slowing inflation buoys households' readiness to buy despite growing concerns about the economic outlook, the GfK market research group said on Monday.
But economists cautioned that a worsening job outlook risked weighing on household spending in coming months, and the IfW economic think tank said Europe's largest economy was set to contract sharply next year, slashing its growth forecast.
The Nuremberg-based GfK's forward-looking gauge of consumer sentiment, based on a survey of 2,000 Germans, was unchanged at 2.1 for January from a downwardly revised 2.1 for December and in line with analysts' forecast.
"Consumer propensity to buy benefited from the reduced rate of inflation to end 2008 slightly up. With this, consumer sentiment remains constant at the start of the new year, albeit at a low level," GfK said in a statement.
Germans' shopping habits are key to the economy's performance as consumer spending accounts for over half of gross domestic product (GDP).
With exporters suffering from weak demand, the government wants to support domestic demand to cushion the economy from the impact of a global slowdown. It has already agreed stimulus measures it says are worth about 31 billion euros ($43 billion) and is debating new measures which could be passed next month.
"Germans don't want to let the financial crisis spoil their Christmas," said Sebastian Wanke, economist at Dekabank.
But he added: "If unemployment is rising at the beginning of the year and the bad news continue, consumer climate is also set to weaken significantly. Germany, the world's top exporter, will particularly feel the effect of the global downturn."
The GfK indicator's willingness to buy component edged up to -6.3 for December from -6.7 for November. The component readings lag the headline number by a month.
LOWER INFLATION, JOB WORRIES
German consumer price inflation slowed sharply in November to an annual rate of 1.4 percent from 2.4 percent in October.
But economists said while lower inflation seemed to offer some relief to shoppers, households' confidence could worsen if a recession in Germany was to deepen.
The Kiel-based Institute for World Economy (IfW) said the German economy would contract by 2.7 percent next year, cutting its forecast from growth of 0.2 percent expected previously.
"Germany likely faces the most severe recession in post-war history," the institute said, adding an upswing in the labour market was nearing its end.
The GfK figures showed a component on business cycle expectations fell to -32.4 from -30.1 in November. Another on income expectations fell sharply to -15.4 from -6.9 in November.
"The decline in the economy is leading growing numbers of those in employment to fear for their jobs and consequently to be more pessimistic in their assessment of their own financial position," GfK said.
Separate figures published on Monday showed German import prices were down 3.4 percent month-on-month in November and decreased 1.3 percent compared to a year ago, showing the biggest year-on-year decline since March 2004.
In neighbouring France, producer prices fell at their fastest pace in more than nine years in November as oil prices continued to slide from their summer peak. Data from national statistics office INSEE showed France's producer price index dropped 1.9 percent in November compared with October.
The German economy slipped into recession over the summer, contracting in both the second and third quarters.
A deputy economy minister said last week the economy may shrink by more than 3 percent in 2009, and leading analysts have predicted a contraction of up to 4 percent -- which would be more than four times worse than the previous post-war nadir. (Additional reporting by Francois Murphy in Paris, Editing by Andy Bruce)