* First half GDP grows 2.4 pct yr/yr
* Steady recovery since 2008 banking meltdown
(Adds background, analyst comment)
STOCKHOLM, Sept 7 Iceland's gross domestic
product grew an annual 2.4 percent in the first half of the
year, data showed on Friday, maintaining a steady pace on the
road back to economic health from the crisis that claimed its
banks in 2008.
"I would say there is a decent, ongoing recovery," Mats
Lind, emerging markets strategist at SEB said.
The North Atlantic island's banking sector collapsed in late
2008, plunging the economy into recession and forcing the
government to seek billions of dollars in aid from the
International Monetary Fund and other lenders.
After contractions of 4 percent in 2009 and 6.6 percent in
2010, Iceland bounced back to growth of 2.6 percent last year.
But sluggish demand for fish and aluminium - the country's
main exports - has kept the recovery relatively subdued while
the global downturn has hampered a growing tourism sector.
Growth was 0.5 percent between April and June, the slowest
pace since the final three months of 2009, though analysts said
this was due to a fall in volatile fixed capital formation.
"Our current full-year GDP forecast is for 2.8 percent
growth, so we haven't been expecting very rapid growth," said
Ingolfur Bender, economist at Islandsbanki.
Trend growth in Iceland has been above 3 percent for
decades, Bender said, meaning the economy is still being
hampered by subdued demand due to the turmoil in the euro zone
and capital controls imposed at the height of the financial
Iceland is proceeding very cautiously to remove the controls
as the economy recovers and had planned for them to be lifted by
the end of 2013. But Europe's debt crisis and rising domestic
inflation have put that timeframe in jeopardy and Finance
Minister Oddny Hardardottir said in June the island still needs
years to fully eliminate them.
Relative to much of Europe, however, Iceland's economy is
surging ahead, despite the central bank having kept interest
rates high to support the crown currency.
(Anna Ringstrom and Simon Johnson; Editing by John Stonestreet)