High global import tariffs and federal government policy uncertainties are expected to keep Hawaii’s economy in slow-growth mode for the next few years, according to a new state forecast.
The state Department of Business, Economic Development and Tourism on Thursday published its most recent quarterly economic outlook, which contains a few mostly small positive changes from its prior forecast issued May 28.
One of the bigger positive changes expected in the latest forecast is the level of inflation in Hawaii not being as high as previously forecast. The new report expects that broad costs for goods and services on Oahu, the biggest consumer market in the state, will rise 3% this year and then 2.8% next year. DBEDT’s last forecast expected increases of 3.8% and 3.6%, respectively.
Still, inflation partly stemming from high U.S. tariffs being imposed on global imports is expected to be higher than an optimal level around 2%, and keep Hawaii’s economy from better foundational growth.
“These conditions are expected to weigh on economic activity, keeping growth subdued through 2026,” DBEDT said in an announcement of its report.
Hawaii’s economy, measured by the value of all goods and services after adjusting for inflation, is expected by DBEDT to grow 1.3% this year followed by 1.4% in 2026 then 1.6% in 2027 and 1.8% in 2028.
By comparison, the measure also known as real gross domestic product, or real GDP, grew 2% in 2023 and 1.9% in 2024.
A 1.3% gain in real GDP this year would represent an additional nearly $1.2 billion of economic activity in the roughly $91 billion local economy adjusted for inflation.
“Hawaii’s economy, like the rest of the country, is navigating a period of slower growth and rising prices,” DBEDT Director James Tokioka said in a statement. “Our forecasts confirm that while the pace of growth will slow in the near term, Hawaii’s long-term fundamentals remain intact. We expect subdued growth in 2025 and 2026 and accelerated growth in 2027 as the economy adjusts to a new tariff regime.”
DBEDT’s new forecast for 1.3% economic growth this year represents a slight improvement from 1.2% that it had forecast in the May 28 report.
Part of the expected bit of improvement appears to stem from employment staying strong through July. DBEDT said that growth in non-agricultural wage and salary jobs underscores broad-based job growth, and that federal job losses in the state have been offset by private sector and state and local government job gains.
Hawaii’s labor force increased by 1.3% percent this year through July, and led DBEDT to increase its full-year outlook for job growth to 1.4% compared with 0.9% in its prior forecast.
Another more positive expectation in the new report is higher visitor spending than previously forecast. DBEDT expects visitor spending to grow 2.3% this year instead of a previously forecast 1.3%. Part of the uptick was due to a downward revision of last year’s change in visitor spending to -0.7% from a previously reported 0.1%.
Other business sectors that DBEDT said are sustaining much of Hawaii’s overall subdued economic growth are construction, health care and professional services.
The agency noted that government construction contracts increased 31.2% in the first half of this year, and that the value of private construction authorized by permits in the first seven months of this year surged by 33.4%, or $843 million, compared with the same periods last year.
Tokioka said that construction, steady job gains and solid visitor spending are expected to provide stability to Hawaii’s economy this year through 2027.
“I am confident in Hawaii’s resilience,” he said. “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.”
SUBDUED GROWTH
DBEDT expects weak growth in Hawaii’s economy this year and next year in large part due to high U.S. tariffs on global imports and uncertainties in federal government policy.
CATEGORY 2023 2024 2025 2026
Visitor arrivals* 9.7M 9.7M 9.7M 9.8M
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%
* Arrivals by air; ** Percentage of workforce;
*** Only for Honolulu; **** Inflation adjusted
Source: State Department of Business, Economic Development and Tourism
Source: The Garden Island
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