Hawaii’s economy is expected to experience slow growth over the next few years, primarily due to high global import tariffs and uncertainties surrounding federal government policies. The state’s Department of Business, Economic Development and Tourism (DBEDT) released its latest quarterly economic outlook on Thursday, indicating that while there are some minor improvements from previous forecasts, the overall economic trajectory remains subdued.
The updated report highlights a moderation in inflation rates. DBEDT now anticipates that costs for goods and services in Oahu, the state’s largest market, will increase by 3% in 2023 and 2.8% in 2024. In comparison, the prior forecast projected inflation rates of 3.8% and 3.6%, respectively. Despite this slight improvement, inflation is expected to exceed the optimal level of around 2%, further constraining Hawaii’s economic growth potential.
DBEDT predicts that the state’s real gross domestic product (real GDP) will grow by 1.3% this year, followed by 1.4% in 2024, 1.6% in 2025, and 1.8% in 2026. In 2023, real GDP grew by 2%, indicating a notable slowdown in growth. A 1.3% increase in real GDP this year equates to an approximate additional $1.2 billion in economic activity within the state’s economy, valued at roughly $91 billion when adjusted for inflation.
DBEDT Director James Tokioka emphasized the broader economic challenges facing Hawaii, stating, “Hawaii’s economy, like the rest of the country, is navigating a period of slower growth and rising prices. Our forecasts confirm that while the pace of growth will slow in the near term, Hawaii’s long-term fundamentals remain intact.”
Employment and Visitor Spending Show Signs of Improvement
Despite anticipated slow growth, employment rates have remained strong, contributing to a more optimistic outlook. The state’s labor force increased by 1.3% through July 2023, prompting DBEDT to raise its job growth forecast for the year to 1.4%, up from 0.9%. This growth has been supported by gains in the private sector and local government jobs, offsetting losses in federal employment.
Additionally, visitor spending is projected to rise by 2.3% this year, an increase from the previously expected 1.3%. This adjustment follows a revision of last year’s visitor spending, which was updated to a decline of -0.7% from an initial report of 0.1%. The increase in tourism-related revenue is crucial for Hawaii’s economy, which heavily relies on visitor expenditures.
Key sectors sustaining Hawaii’s economic performance include construction, healthcare, and professional services. The report noted a significant increase in government construction contracts, which rose by 31.2% in the first half of 2023. Furthermore, the value of private construction authorized through permits surged by 33.4%, totaling approximately $843 million compared to the same period last year.
Tokioka expressed confidence in Hawaii’s economic resilience, stating, “I am confident in Hawaii’s resilience. Our people, our industries, and the enduring strength of our communities will carry us through this transition. Together, we will emerge stronger, with new opportunities for growth and prosperity in the years ahead.”
Future Economic Projections
DBEDT’s revised forecasts indicate that Hawaii will continue to face economic challenges due to external factors, particularly high U.S. tariffs on global imports and ongoing uncertainties in federal policies. The department anticipates that this subdued growth will extend into 2025 and 2026, before a potential rebound in 2027 as the economy adjusts to the new tariff landscape.
The following table summarizes key economic indicators projected for Hawaii through 2026:
Category | 2023 | 2024 | 2025 | 2026
— | — | — | — | —
Visitor arrivals | 9.7 million | 9.7 million | 9.7 million | 9.8 million
Nonfarm payrolls | 2.3% | 0.9% | 1.4% | 0.9%
Unemployment rate | 3.0% | 3.0% | 2.9% | 2.9%
Inflation rate | 3.1% | 4.4% | 3.0% | 2.8%
Visitor spending | 5.4% | -0.7% | 2.3% | 2.2%
Real personal income | 3.9% | 2.0% | 1.4% | 1.6%
Real GDP | 2.0% | 1.9% | 1.3% | 1.4%
As Hawaii navigates these economic challenges, the focus will remain on leveraging its strengths in tourism and construction to promote stability and growth in the coming years.