Hawaii’s economy still has an upbeat outlook despite mushrooming global gloom, thanks to anticipated growth in international visitor arrivals, a new forecast suggests.

The University of Hawaii Economic Research Organization expects a rising number of foreign tourists over the remainder of this year will boost the local economy enough to offset expected negative impacts from inflation, Russia’s war in Ukraine, COVID-19 shutdowns in China and U.S. interest rate increases planned by the Federal Reserve.

“Were it not for the anticipated return of international visitors, we would be marking down our forecasts because of the combined effects of war, inflation, supply bottlenecks, and pending Fed interest rate hikes,” UHERO said in a report released for publication today.

UHERO expects visitor arrivals this year will reach 8.9 million, which would be up from nearly 6.8 million last year and is about 189,000 more visitors than what the organization projected in a report produced in March.

In 2023 and 2024, UHERO projects about 9.5 million visitor arrivals, compared with Hawaii’s record 10.4 million in 2019.

Visitor spending, adjusted for inflation, is projected to reach $17.4 billion this year, up 34% from $13 billion last year and $289 million over what UHERO forecast in its March report.

Some of this projected gain is tied to the expected return of higher-spending international visitors mainly from Asia.

To date, Hawaii’s tourism rebound has been almost completely fueled by record numbers of visitors from the mainland who are spending more and pushed inflation-­adjusted visitor spending in March to within about 10% of what it was in 2019 before the pandemic, UHERO reported.

All this ongoing and anticipated positive activity in tourism, Hawaii’s main economic driver, should help expand the local workforce by 25,700 people this year and an additional 21,400 next year, according to the forecast.

Such job growth, the report said, should push down Hawaii’s unemployment rate to 3.6% this year then to 2.9% next year, representing close to full employment. The unemployment rate for 2019 was 2.4%, and shot up to 12% for 2020 before improving to 5.8% last year.

UHERO noted that part of the improving unemployment rate is due to a smaller pool of available workers, as residents have left the state amid economic difficulties over the past two years.

The organization also noted that personal income adjusted for inflation is expected to decline 5.1% this year largely because of the absence of federal aid, and then rebound by 0.9% next year followed by 1.6% in 2024.

The broadest measure of Hawaii’s economy, the value of all locally produced goods and services adjusted for inflation, is forecast to rise 3.5% this year to $93.1 billion, or $3.1 billion more than last year.

This measure, known as real gross domestic product, is projected to rise in each of the next two years by a little over 2% to reach a new peak in 2024 at $97.6 billion to top the prior high of $96.7 billion in 2019.

Still, UHERO warns that serious risks could upset such growth.

Inflation is one such concern. The university economists note in their report that local inflation, as measured by the Honolulu consumer price index, hit a 31-year high of 7.5% in March and for the year is projected to be 6.7%. Honolulu’s average inflation rate from 2017 to 2020 was 1.9%.

UHERO calculated that higher costs for gasoline, electricity, food, housing and other things add up to an extra $3,600 for an average household in Hawaii this year compared with 2019 and 2020.

“As a result, inflation will burden economic growth until it returns to trend over the next two years,” UHERO said in the report, which forecasts Hawaii inflation dropping to 4% next year and 2% in 2024.

Another noted risk is a U.S. recession, which would hurt tourism from the mainland.

Yet another concern described in the report is a very weak yen affecting spending by visitors from Japan.

UHERO said the inflation-adjusted value of Japan’s currency is 18% lower than when the pandemic began, and makes travel more expensive for Japanese visitors. The report noted that the yen’s exchange rate with the U.S. dollar is weaker than it has been in 50 years by some measures, and that the yen may fall further as U.S. interest rates rise.

Visitor arrivals from Japan also are being governed by pandemic-mitigation restrictions imposed by that country, including a daily limit of 10,000 inbound or returning passengers to Japan.

UHERO said about 4,000 visitors from Japan came to Hawaii daily before the pandemic and accounted for 12% of all visitor spending.

“That’s a real barrier right now,” said Bryon Gangnes, a UHERO senior research fellow who helped produce the report.

Gov. David Ige is in Japan meeting with government officials, and the issue is on his agenda to be discussed. UHERO anticipates that the restriction will be eased in the next couple of months and lead to more arrivals from Japan.

“We think that’s going to show up mostly in the third quarter,” Gangnes said.

All told, UHERO’s assessment is that the positive factors feeding Hawaii’s ongoing economic rebound will not be overcome by negative forces, though there is substantial risk that the reverse could happen.

“So Hawaii proceeds forward, toward a more complete tourism recovery and the increase in spending and jobs that will spill over to the broader local economy,” the forecast said. “But all the while we will be nibbling away at our fingernails, hoping that COVID costs are truly behind us and that a U.S. and global recession can yet be avoided.”