Economic forecast for Hawai'i optimistic

Advertiser Staff and News Services

A booming private and military housing industry, strong tourism and a growing global economy should add up to continued gains for Hawai'i's economy in the next two years, according to two University of Hawai'i experts.

The annual economic report released yesterday by Professors Carl Bonham and Byron Gangnes of the University of Hawai'i Economic Research Organization also warned of higher inflation fueled by growing housing and fuel prices.

"This is the best that Hawai'i's economy has looked in a long time," Bonham said, noting that this year would mark the eighth straight year of rising real personal income for residents.

Weighing in favor of the local economy are an improved national economy and a strengthening of Japan's economy, which is performing better than in recent years, the report said. Economic growth in Hawai'i is now increasingly broad based, touching nearly every sector of the economy.

That means the construction sector will continue to grow strongly for the next several years, with moderate expansion in tourism-related areas and other service categories.

The UHERO report said the big story for the next several years will be a sharp increase in the impact from the military sector.

"Deployment of O'ahu troops will exert a negative influence this year, but new basings will provide stimulus further out," it said. "There will be substantial stimulus to construction associated with military housing renovation projects."

Bonham and Gangnes forecast that inflation-adjusted personal income in Hawai'i, their broadest measure of economic activity, will hit 2.8 percent this year (compared to 2.5 percent in 2003) and will reach 3.6 percent in 2005 "as military construction, public-sector raises and Japanese visitor recovery work their way through the economy."

As for inflation, they said it probably will exceed 3 percent this year, "dropping back only slowly thereafter."

"Both surging home prices and high energy costs will contribute to a more inflationary environment for the next several years," their report said.

Still, the forecast doesn't account for potential geopolitical events, such as terrorism or instability in the Middle East, which could drive oil prices up further and rattle consumer confidence, Bonham said.

"This is an optimistic forecast for sure," he said. "But I think the risks are quite real.

"We've seen what geopolitical uncertainty can do to our visitor market."

Associated Press contributed to this report.