State economists forecast a downturn in the economy this year, but they stopped short of predicting a recession.
The state Department of Business, Economic Development and Tourism released its most recent forecast for Hawaiʻi’s economy, highlighting the volatility of federal-level actions, a lagging tourism industry and inflation as the drivers of the worsening economy.
It projects the state’s real GDP will grow by 1.2% this year, down from the 1.7% growth it projected previously.
State economist Eugene Tian said one of the main factors in DBEDT’s latest forecast is the “uncertainty” on the federal level: shifting tariffs, cuts to federal spending, and other policies from the Trump administration that have impacted or can impact travel, jobs and spending.
“How do we interpret or translate that uncertainty into economic activity? I think that is the key,” Tian said.
But DBEDT’s outlook going forward is relatively optimistic. It predicts a 1.5% growth in Hawaiʻi’s GDP next year, a notable shift from the “mild recession” that the University of Hawaiʻi Economic Research Organization has projected for next year.
UHERO said the state’s GDP will actually fall next year, and growth will average 0.6% over the next three years.
Meanwhile, DBEDT believes growth will rise steadily to 1.8% in 2028.
“Although Hawai‘i 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 Tokioka said in a statement.
Hawaiʻi’s labor market and construction boom are DBEDT’s biggest sources of optimism for the economy.
DBEDT said that the state’s labor force has recovered to pre-pandemic levels, and that unemployment claims are lower through the first part of 2025 than they were during the same period in 2019.
It also noted that there was a growth in construction projects between 2023 and 2024, and that trend has continued into this year.
Tian said that a more “flexible” federal government could end up being good for the economy.
“We do see there are some offsetting forces like the labor market and construction, and also we feel that the (federal) uncertainty may be more clear after a few months, so it is not going to last for long,” he said, adding, “ I think the federal government is able to make adjustments quickly. When they see the impact, they make adjustments, so the impact is not going to last long.”
While DBEDT expects a dip in tourism this summer, the sector could improve starting next year.
Tian said the value of the Japanese yen is expected to strengthen in 2026, which would encourage more visitors from Japan — a part of the local tourism industry that has yet to recover to pre-pandemic levels.
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