Hawaiʻi Exits Recession, Growth Stays Modest

University of Hawaiʻi Economic Research Organization forecasts gradual recovery for state's economy

Published on Feb. 28, 2026

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Hawaiʻi's economy is moving beyond last year's mild recession, but the recovery will be gradual, according to the University of Hawaiʻi Economic Research Organization's (UHERO) first quarter forecast for 2026. While the U.S. economy has held up better than expected and construction remains strong, tepid job and income growth will become the new normal due to anemic population trends and structural underperformance.

Why it matters

Hawaiʻi's economy is heavily reliant on tourism, which has stabilized but is not yet expanding. The state also faces risks from trade policy uncertainty, potential federal workforce reductions, and ongoing weakness in international tourism. Understanding the state's economic outlook is crucial for businesses, policymakers, and residents.

The details

UHERO expects Hawaiʻi's real GDP to expand by 1.6% this year before converging to a similarly slow long-run growth path. Inflation in Honolulu is expected to peak just above 3% in the second half of this year, with mortgage rates remaining near 6%. Construction, health care, and the accommodations and food service sectors will continue to add jobs, while federal civilian employment losses will pull down growth numbers.

  • UHERO released its first quarter forecast for 2026 on February 27.
  • The U.S. economy slowed in the fourth quarter of 2025 partly due to the federal government shutdown.
  • UHERO expects growth to remain near 2% this year before slowing somewhat in 2027.

The players

University of Hawaiʻi Economic Research Organization (UHERO)

A research organization housed in the University of Hawaiʻi at Mānoa's College of Social Sciences that provides economic forecasts and analysis for Hawaiʻi.

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The takeaway

Hawaiʻi's economy is slowly recovering from a mild recession, but the state faces ongoing challenges, including tepid job and income growth, trade policy uncertainty, and weakness in the international tourism market. Businesses, policymakers, and residents will need to adapt to this new economic reality of more modest growth.