A state forecast for Hawaii’s economy anticipates weaker growth next year but is more optimistic than a recent University of Hawaii projection for a mild recession.
The new outlook from the state Department of Business, Economic Development and Tourism published Wednesday anticipates that Hawaii’s economy will expand 1.5% next year after growing 1.2% this year.
DBEDT’s latest projection is a half-percentage point lower for 2025 and 2026 than it was in the agency’s previous outlook released March 4.
The difference represents reduced economic output totaling $453 million this year and $913 million next year.
DBEDT said its downgraded forecast reflects the impact of federal tariffs on international imports, a slowdown in tourism, persistent consumer inflation and increasing uncertainty in both national and international economic policy.
Recent state job growth was a buoying factor.
“Although Hawaii faces short-term economic challenges — including softening tourism, inflationary pressures and continued uncertainty in global markets — we remain confident in the state’s long-term economic resilience and are optimistic to see that most of our industry sectors are adding jobs,” DBEDT Director James Kunane Tokioka said in a statement.
Hawaii job growth was good at 1.8% for the first three months of this year compared with the same period last year. Then it jumped in April.
DBEDT reported that Hawaii’s 2.7% growth rate in nonagricultural wage and salary jobs for April from a year earlier was the biggest increase in the nation.
April’s gain represented the addition of 17,000 jobs, and surprised local economists especially given efforts in recent months by the federal government to slash jobs.
“They were through the roof,” Carl Bonham, director of the University of Hawaii Economic Research Organization, said during a May 21 state Council on Revenues meeting in reference to the April job gains. “We saw big gains in health care and big gains in leisure and hospitality.”
UHERO in a May 9 report forecast a mild recession for Hawaii next year with the value of all goods and services adjusted for inflation, known as real gross domestic product, shrinking 0.3% in 2026. DBEDT’s forecast for Hawaii real GDP in 2026 is 1.5%.
UHERO’s forecast was made before the April jobs data was available and after some changes to federal tariff policies.
DBEDT expects that job growth for all of this year will be 0.9% followed by 0.8% next year, and that Hawaii’s unemployment rate will improve a bit to 2.9% this year and next year from 3.0% in 2024.
“The state’s labor market is expected to remain stable, with only modest impacts on the unemployment rate,” the report said.
Eugene Tian, the state’s chief economist, said in an interview last week that the local labor market is one of two “bright spots” in the local economy. Construction is the other one.
“The construction industry is booming,” he said, explaining that it represented about $14 billion in the state’s roughly $100 billion economy and is growing this year.
DBEDT’s report said the value of private-industry building permits for the first three months of this year was up 40% from the same quarter last year. The report also said the number of residential units authorized for construction during the first three months of this year was up 90% from a year earlier.
Big ongoing projects include a Pearl Harbor Naval Shipyard dry dock expansion and the city’s rail line. Significant high-rise condominium development also is continuing, while the state has a thick pipeline of planned affordable-housing projects that could help sustain the industry along with anticipated redevelopment of Aloha Stadium.
Tokioka said construction activity will offset stagnation in tourism this year, and that a tourism industry rebound is expected in 2026.
DBEDT forecasts the number of visitor arrivals this year will slip by 0.1%, or 11,000 people, to 9.68 million from 9.69 million last year. Next year, arrivals are forecast to rebound by 0.7% to about 9.75 million. The record was 10.4 million visitors in 2019.
Visitor spending, adjusted for inflation, is projected to rise 1.3% this year to $21.2 billion and then by 1.7% to $21.5 billion next year.
Inflation, which is calculated only for Honolulu, is projected by DBEDT to be 3.8% this year and 3.6% next year. In 2024 it was 4.4% and up from 3.1% in 2023.
Personal income for Hawaii residents, after accounting for inflation, is forecast to edge up 1.5% this year and 1.4% next year, according to DBEDT’s forecast.
“Looking ahead,” the report said, “Hawaii’s economic resilience will depend on sustained strength in construction, real estate, health care and professional services, while tourism is projected to recover at a slower pace.”
