Hawaii’s economy is looking a little brighter for next year after a murky 2019.

Just three months after forecasting the state economy would slow to a near “standstill” for the next three years, the University of Hawaii Economic Research Organization has become slightly more optimistic and said following this year’s weakness that it expects some improvement in the external environment to help the state edge back onto a positive, if restrained, growth path.

“While prospects for the U.S. and global economies remain very uncertain, we think that global conditions will bottom out this year, and that a gradual recovery of economic activity in major markets will begin in 2020,” UHERO researchers wrote in a report released Friday. “If this plays out, it will set the stage for some firming of tourism.”

UHERO forecasts visitor arrivals to increase 2.6% in 2020 to a ninth straight record and then increase 1.3% in 2021 and 0.8% in 2022 when it nears 10.8 million. Visitor arrivals are expected to surpass 10 million this year for the first time on the heels of Southwest Airlines’ entry into the Hawaii market.

In its September forecast, UHERO had called for arrivals to decrease 1.2% in 2020, slip 0.1% in 2021 and tick up 0.3% in 2022.

“While arrivals will continue to grow at a modest pace, real (inflation adjusted) visitor spending will break even at best next year,” UHERO said.

Tourism, though, will not be without its headwinds. The research organization said capacity constraints include the City and County of Honolulu’s tightening enforcement of transient vacation rental regulations, rising prices for goods and serv­ices, congestion and restrained growth abroad. Together, they will limit the increase of tourism in coming years, UHERO said.

In August, the City and County of Honolulu enacted a law with fines up to $10,000 a day for homeowners and marketing platforms that advertise homes as short-term rentals (less than 30 days) if the property isn’t in an area zoned for resort use or lacks a special permit.

UHERO also revised upward its expectations for the state’s growth, as measured by the inflation-adjusted gross domestic product. UHERO, noting that the construction industry is holding up and visitor arrivals keep growing, projects GDP to rise 0.9% in 2020 as previously forecast but then increase 1.1% in 2021 and 0.7% in 2022. Those last two years are higher than UHERO’s previous forecast of 0.6% and 0.4%, respectively. GDP represents the economy’s total output of goods and services.

Oahu’s housing market is expected to keep growing at a snail-like pace with the median single-family home price projected to rise 1.9% and top $800,000 for the first time next year at $803,500. UHERO expects median home prices to increase 2.4% in 2021 to $822,500 and 1.2% in 2022 to $832,100.

Condominium medican prices are forecast to grow slightly faster at 2.8% next year to $437,400, 2.4% in 2021 to $447,700 and 2.3% in 2022 to $457,800.

Despite the improved forecast, UHERO said there is no question that risks of a more negative downside are higher than they have been in some time with the U.S.-China trade war and other political uncertainty creating concern. That leaves U.S. growth heavily dependent on consumers, UHERO said.

“Luckily, the fundamentals underpinning their healthy spending remain strong, but still one wonders how long they can hold up overall growth,” UHERO said. “Slippage on any of these fronts could tilt Hawaii from the current no-to-slow growth pace to an outright decline.”

UHERO said since a recession will come at some point, it is impossible to ignore these risks. But for now, UHERO said, they remain simply risks.

“Yes, growth has slowed to a standstill, but we think the odds still favor a return to modest expansion for the next few years,” UHERO said.