The economy should show moderate growth in 2003 and probably will reach pre-9/11 levels of economic activity, said Leroy Laney, a Hawai'i Pacific University economics professor, in his annual forecast for the bank.

In his presentation to business leaders, Laney predicted job growth of 1.5 percent next year, following a 1.0 percent loss in 2002 brought about by thousands of layoffs in the tourism industry as visitors stayed away after the terrorist attacks.

He also predicted increased visitor arrivals, higher personal income and mild inflation for 2002 and 2003 ­ all signs of recovery.

"Hawai'i is in a recovery mode," Laney said. "Our post-9/11 recession turned out to be not quite as deep ­ or as pervasive ­ as we originally thought it might be, mainly because it was so uneven. It was contained mostly in the state's tourism sector and did not spread to other parts of the economy."

He said low interest rates, brought about by the U.S. Federal Reserve Board's steep rate cuts since January 2001, have helped stimulate rate-sensitive areas of the economy, including the housing, banking and construction sectors, and helped soften the impact of tourism's decline.

But he cautioned that the state is still seeing "greater levels of uncertainty than usual," thanks to the threat of war and the possibility of further economic declines on the U.S. Mainland and in Japan.