Anticipated mild economic downturn for the Hawaiian economy forecasted for the near future.
Hawaii's Economy Stares Down the Barrel of a Recession
It seems the paradise of Hawaii is bracing for some economic turbulence, as economists from the University of Hawaii predict a gradual contraction starting later this year. This downturn can be traced back to the ripple effects of federal policies that are steadily impacting tourism, employment, and personal income in the Aloha State.
The University of Hawaii Economic Research Organization (UHERO) today released a report hinting at a mild recession on the islands before the end of 2025, prolonging into 2026. This pessimistic prediction is due, in part, to global tariffs linked to President Trump's administration and the resulting decline in U.S. and international tourism to the Hawaiian islands, along with federal spending cuts and job losses in the state.
In a stark warning, UHERO points out, "Hawaii's economic outlook has taken a decisive turn for the worse, as expansive federal policy shifts look poised to tip the local economy into a mild recession." The report further emphasizes that the anticipated economic decline in Hawaii could worsen due to factors like sustained tariffs, delayed policy reversals, and global backlash to U.S. actions, potentially deepening the downturn.
Just a month before Trump took office in January, UHERO projected that, after accounting for inflation, Hawaii's economy would grow by 2.9% in 2021. But in the current forecast, that figure has been slashed to a mere 1.1% growth for 2021, with a disheartening 0.3% decline predicted for 2026. This dip translates to a loss of $313 million in produced goods and services in Hawaii's estimated $117 billion economy.
Job losses are expected to follow suit, with UHERO forecasting a decrease of 5,100 jobs statewide in 2026, translating to a 0.8% decline. This jump in unemployment will boost Hawaii's unemployment rate to 3.6% in 2026 from a projected 3.1% this year. The first quarter of 2021 saw the unemployment rate hovering just below 3%.
Personal income is also expected to dwindle by 0.2% in 2026, representing a loss of approximately $177 million in household earnings.
Should Hawaii's economy contract in 2026, it would be the second annual decline in six years, but not as devastating as the 10.4% downturn in 2020 triggered by the COVID-19 pandemic.
The looming recession can largely be attributed to the already weakening tourism sector before the dramatic changes in federal policy were announced. UHERO's report expects these federal policies to exacerbate the negative impact on the biggest driver in the local economy. The number of visitors arriving by plane is forecasted to fall by 2.2% this year to 9.47 million, and then by a further 1.9% in 2026 to 9.29 million.
Steven Bond-Smith, one of several UHERO economists contributing to the report, explains that the slowdown in tourism will impact people even if they are not directly employed within the tourism sector: "Although not everyone is employed in tourism, tourism flows throughout our economy, through secondary and flow-through effects."
The negative impact on the local economy is also attributed to federal spending cuts and job losses locally. Peter Fuleky, another UHERO economist and report author, notes that uncertainties stemming from these cuts can lead to residents and businesses pulling back on spending, consequently contributing to a broader economic downturn.
One positive aspect the report identifies is the construction industry's strength. Although some materials may cost more due to tariffs, construction projects, including those at Pearl Harbor Naval Shipyard, are expected to remain stable and provide employment opportunities.
UHERO's forecast predicts Hawaii's economy to rebound in 2027, with 0.9% growth.
Insights: [[Tariffs][Trade policies][Tourism][Hawaii economy][Unemployment][COVID-19 pandemic]]
- The anticipated economic recession in Hawaii, predicted by the University of Hawaii Economic Research Organization (UHERO), can be partially attributed to the decline in U.S. and international tourism due to global tariffs linked to President Trump's administration.
- The report also highlights the risks associated with federal spending cuts and job losses in the state, which could worsen the economic downturn.
- In 2026, Hawaii's economy could see a contraction, potentially causing a 0.8% decline in employment, and a dip in personal income by 0.2%.
- The macroeconomic forecast for 2025 suggests a mild recession lasting into 2026 for the Hawaiian islands, dragging down the finance and business sectors, and making headlines in general news and politics.
- Despite the negative impact on other sectors, the construction industry is expected to remain strong, with continuing projects contributing to employment opportunities, even with potential price increases due to tariffs.
