The latest forecast on Hawai'i's economy projects deteriorating tourist arrivals, unemployment and inflation this year, with anemic activity continuing into 2009.

The forecast was done by the University of Hawai'i Economic Research Organization as part of its quarterly outlook on the state's economy. The group said prospects for the state's economy had taken a downturn since it issued a forecast three months ago with the failures of ATA and Aloha Airlines and a surge in oil prices.

"A significant recovery of the local economy will not begin until 2010, making this a relatively shallow but lengthy Hawai'i economic contraction," said the report, which updated one that projected the state's economic growth would "grind to a halt."

"A deeper slowdown could occur if oil prices remain at their current record levels or if the national housing slump worsens more than expected."

Hawai'i's economy has come in for more intense examination this year after a series of setbacks that included a loss of airline seats with ATA and Aloha going bankrupt and rising gasoline and electricity prices as crude oil spiked.

There's also been the pullout of NCL America of two of its three cruise ships that were based here, along with Molokai Ranch suspending operations.

The revised UHERO outlook cut expectations for the eight economic indicators tracked by the group, with new tourism arrival projections calling for a 4.6 percent decline in visitors.

It said personal income adjusted for inflation will fall 0.1 percent this year compared with a minimal gain it previously projected.

Byron Gangnes, director of UHERO's Hawaii Economy Group, declined to say whether the drop in personal income and other indicators meant the state was in a recession. Instead, he said the economy could be characterized as having a mild contraction over the next two years.

"There's no precise definition of recession for a state economy so we're not going to call this a recession," Gangnes said.

"However, we are projecting a slight decline in jobs and a very slight decline in real income."

No exact comparisons exist for what the state is going through since the downturn after the Sept. 11 terrorist attacks was sharp but relatively short, Gangnes said. Hawai'i's economic sluggishness of the 1990s lasted years with a succession of negative shocks creating a long stagnant period, he said.

"We don't think that's what we're headed for this time around," Gangnes said.

The new forecast also projects: