The state Department of Business, Economic Development and Tourism yesterday tempered its outlook for Hawai'i's $61.8 billion economy, saying growth this year and next will be slightly lower than it had previously forecast.

The department's revised projection calls for the economy to grow by 2.5 percent this year after inflation is accounted for, lower than the 2.8 percent it had previously forecast.

The revision comes as Hawai'i's growth slows with fewer tourism arrivals and inflation continues to eat into residents' income. The state's forecast for visitor arrivals calls for a 1.4 percent decline this year, given continued sluggishness in air travel coupled with NCL America pulling two cruise ships out of interisland cruises.

Previously, the state had thought visitor arrivals would grow by 1 percent this year, reversing a 0.8 percentage decline that occurred in 2007.

Tourism arrivals are expected to decline by about 107,000, while visitor expenditures won't reach the $13.2 billion DBEDT had been anticipating.

Instead, it will come in at about $12.7 billion.

"We still expect continued job growth in professional and business services, construction, food service and health services that should counter weakened visitor activity," Theodore E. Liu, DBEDT director, said in a press statement.

"As a result, we continue to forecast moderate economic growth during the next few years."

The growth will be the smallest since 2002 if DBEDT's forecast becomes reality, and less than half the rate in 2004, when Hawai'i's economy boomed.

Still, 2.5 percent growth is in line with the 2.7 percent average between 1998 and 2006, said Khem Sharma, a DBEDT economist.

It also is better than the 1.7 percent increase forecast nationally in a survey of economists by Blue Chip Economic Indicators, which was revised downward by 0.5 percentage points in recent weeks.

The weak national forecast has as its backdrop sluggish housing sales, tighter credit conditions and lingering worries about the subprime mortgage crisis and whether a recession will occur.

"It (Hawai'i) is stronger than the forecast for the U.S. economy," Sharma said.

Other revisions to the state forecast include: