Growth in tourism and residential construction prompted University of Hawai'i economists to upgrade their forecasts for income growth this year, but they said inflation and uncertain energy prices in the wake of Hurricane Katrina could affect Hawai'i's economy.

The economists upgraded 2005 state income growth, based on new data, to 3.6 percent, and predicted marginal slowing to 2.7 percent in 2006. Their forecast in June was for 3 percent growth.

The forecast released yesterday by the university's Economic Research Organization said the economy still is growing but at a slower rate than last year.

"At the same time, we may now be seeing early signs of the gradual slowing that we expect to occur over the next several years," economists Carl Bonham and Byron Gangnes wrote.

They said economists will be watching over the coming weeks and months what effect Hurricane Katrina — which stopped 90 percent of the oil production in the Gulf of Mexico — will have on the U.S. and global economies.

Most economic indicators were forecast to grow this year and next.

Visitor arrivals are expected to rise 6.4 percent over last year, payroll jobs are forecast to grow 2.3 percent, employment 2.6 percent, and unemployment is forecast to average 2.8 percent.

Another indicator forecast to rise is inflation, which the economists predict will grow by 3.4 percent this year and 3.8 percent in 2006.