Iceland's gross domestic product (GDP) shrank 2.0 percent in the second quarter from the preceding three-month period for an annual contraction of 6.5 percent, preliminary data from the statistics office showed on Friday.
'Contrary to other countries in the region, quarterly growth in Iceland is probably going to remain negative for the rest of this year,' he added.
Although the central bank sees the economy of the island of only 320,000 inhabitants contracting around nine percent this year and shrinking still further next year, there is little scope for reducing interest rates, currently at 12 percent.
There are a lot of fascinating things about the Iceland situation. I'm just beginning to follow it. Maybe others here know more and could write about it. Letting the banks fail is clearly not the end of the story when vast sums of money are owed to other countries or citizens thereof, regardless of what the Icelanders may want. The Iceland situation makes one ponder the meaning of national boundaries and sovereignty.
Update: Here's a link to a Vanity Fair article from April 2009 about Iceland's banking collapse and its response to it.