Hawaii’s economic outlook has turned weaker than expected, with local economists warning that rising oil prices, higher living costs and fresh pressure on the tourism sector are clouding the state’s near-term prospects. In its latest forecast, the University of Hawaii Economic Research Organization said a recession is not its base-case scenario, but the state now faces a more difficult path in 2026 after entering the year with signs of improvement.
The new assessment points to a mix of economic shocks hitting Hawaii at the same time. Economists said global oil price pressure linked to conflict involving Iran is pushing up fuel and travel costs, while the state is still dealing with damage from the March Kona Low storms. Those strains are landing on an economy where job growth had already been soft and tourism was losing momentum.
Under its baseline forecast, UHERO expects Hawaii’s real GDP to grow by 1% in 2026. That is still positive growth, but it reflects a slower and more fragile expansion than many had hoped for earlier in the year. The forecast warns that if oil prices stay elevated for longer or rise further, growth could slow to 0.4%, a level economists say would be consistent with recession-like conditions in the islands.
Tourism, the state’s main economic engine, remains at the center of the concern. UHERO said the visitor industry began 2026 with some momentum, but that strength was interrupted after the March storms reduced passenger counts. Economists now expect visitor arrivals to rise by about 2% this year, helped partly by the stronger start, before slowing sharply to just 0.2% growth in 2027.
The bigger concern is not only the number of visitors, but how much they will spend and how willing they will be to travel as costs rise. The forecast says jet fuel prices have roughly doubled, pushing transpacific airfares up by about 20% to 25%. That creates additional pressure for travelers from key overseas markets. Canadian arrivals have continued to weaken, while Japanese travelers are facing reduced purchasing power as the yen remains weak.
UHERO expects real visitor spending to grow only 0.8% in 2026 before slipping 1% in 2027, a sign that the tourism recovery may lose force even if visitor numbers hold up modestly. For a state so heavily tied to travel demand, any sustained softness in that sector can quickly spread across restaurants, retail, transport and hospitality-related jobs.
On the jobs front, the forecast paints a restrained picture rather than a collapse. Statewide payroll growth is expected to be essentially flat this year, with nonfarm job growth at just 0.1% in both 2026 and 2027. The unemployment rate is still projected to remain low at 2.4% this year and 2.5% next year, suggesting Hawaii is not facing a broad labor market breakdown. Even so, economists noted that the labor force has edged down slightly and federal employment has fallen by more than 3,000 jobs over the past year.
Not every part of the economy is weakening. Construction and healthcare remain among the stronger sectors, offering some support at a time when tourism-linked industries are under renewed stress. UHERO said construction activity should continue to benefit from federal contracts, Maui wildfire rebuilding work and projects tied to the planned $4 billion New Aloha Stadium Entertainment District. Those investments are helping to offset softness elsewhere and may prevent the broader economy from tipping into outright contraction.
For households, however, the pressure is becoming harder to ignore. UHERO expects Honolulu inflation to average 4.1% in 2026 and peak near 4.8% around mid-year. Economists estimate a typical Hawaii household could face roughly $100 a month in added energy costs as higher fuel prices feed through to gasoline and electricity bills. Real labor income is expected to remain unchanged, meaning many families may feel that wages are not keeping pace with rising prices.
The housing picture also remains difficult. UHERO said the market is soft, with median single-family home prices holding near the $1 million mark while condo prices continue to ease. Affordability remains a serious challenge, and insurance is becoming a growing part of that burden. The report said insurance premiums, already up 13% since the Maui wildfires, may rise further after the March storms.
The darker tone of UHERO’s latest forecast stands in contrast to Hawaii’s earlier official outlook. In March, the state Department of Business, Economic Development and Tourism projected Hawaii’s real GDP would grow 1.7% in 2026, with visitor arrivals rising 0.8% and inflation at 2.8%. That earlier forecast reflected a more resilient start to the year, underscoring how quickly conditions have shifted as global energy risks and local storm-related disruptions intensified.
Even with the weaker outlook, economists are not suggesting that Hawaii’s economy is falling apart. Instead, the latest forecast signals a period of slower growth, higher costs and greater uncertainty for a state that depends heavily on imported energy and long-haul travel. For residents, that means more expensive daily life. For businesses, especially those tied to tourism, it means a more cautious operating environment. And for policymakers, it is a reminder that Hawaii’s recovery remains vulnerable to both global shocks and local disruptions.
