Hawaii’s economy remains on track for modest growth this year and next, although a "rather gloomy" outlook for the global economy puts that prediction at risk, a group of University of Hawaii researchers said in a report released today.

Among the recent positive news for the local economy has been a reversal in the post-earthquake Japanese tourist decline, and a retreat in oil prices from the peak of $110 per barrel in April, according to the report from the University of Hawaii Economic Research Organization.

State gross domestic product, the broadest measure of Hawaii’s economic activity, is forecast to grow 1.7 percent this year and 2.1 percent in 2012. UHERO revised upward its 2011 and 2012 forecasts for several economic indicators, including visitor arrivals, payroll jobs and personal income.

The organization is forecasting a 2.1 percent increase in visitor arrivals this year, up from the previous estimate issued in September of a 1.7 percent rise. The biggest revision was in arrivals from Japan, which are expected to fall by 6.6 percent and not by 9.3 percent as previously forecast.

Continued recovery in the Japan market, along with gains from other non-U.S. markets like Canada and Australia, should bolster the visitor industry in the fourth quarter, according to the report.

"The strong point for tourism this year has been the stunning visitor numbers from countries other than the U.S. and Japan," the researchers wrote.

They said their biggest concern is the "rather gloomy external environment" that will create "headwinds" for the local economy.

"The biggest present risk is in Europe, where a euro zone that is probably already in recession could be crushed by the sovereign debt crisis if political will is not found to drive a comprehensive solution. The U.S. economy and Hawaii can avoid falling into outright recession if Europe manages to get things right. We are counting on that," they wrote.

The industry that has had the most difficult time recovering from the recent recession has been construction, according to the report.

While construction sector job growth finally turned positive in September after more than two years of declines, the gains have been mostly on Oahu.

Public-sector construction, which helped take up some of the slack during the economic downturn, will continue to do so, according to the report.

"We continue to expect a marked upturn in public procurement in coming years, with the single-biggest contribution coming from rail mass transit construction on Oahu," the researchers wrote.