UPDATE 1-Fish strike hits Iceland, central bank sees slower growth

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COPENHAGEN, Nov 15 (Reuters) - Iceland's central bank has slashed its 2017 growth forecast due to a slowdown in export growth partly caused by a fishing industry strike and now expects the economy to grow only half as fast as last year, it said on Wednesday.

It now foresees economic growth of 3.7 percent this year, down from an earlier forecast of 5.2 percent and compared with a 7.2 percent expansion in 2016.

The Nordic island of 340,000 people, one of the countries hit hardest by the 2008 financial crisis, has enjoyed an economic rebound fuelled by a tourism boom but the central bank said export growth had eased after a surge in late 2016, even though the global economy has picked up.

"It appears that it has taken longer to make up the production loss in the fishing industry following the fishermen's strike at the beginning of the year," the central bank said.

Growth in service exports had also subsided more quickly than it had assumed when it gave its last forecast in August.

"Furthermore, there are signs that marine product prices, the main source of the past few years' improvement in terms of trade, fell in Q3," the bank said.

The central bank expects growth next year to match 2017's and then ease towards the long-term trend growth of around 2.5 percent per year in 2019 and 2020.

Three parties spanning the political spectrum are currently in talks to form a new government after Icelanders ousted their centre-right government in an election last month.

Some hope that a broad coalition could bring more political stability to the country after a string of scandals that have hurt trust in government in recent years.

One of the most urgent tasks for any new government will be to pass the budget for next year.

The central bank kept its key deposit rate unchanged at 4.25 percent on Wednesday, saying "the current monetary stance appears sufficient at present to keep inflation broadly at target".

It cut its key deposit rate in October for the fifth time since August last year to offset the impact of lower inflation.

(Reporting by Teis Jensen; Editing by Catherine Evans)