HONOLULU (KHON2) — The University of Hawai’i Economic Research Organization has released its latest report indicating that the global war on inflation may impact growth in Hawai’i.
According to UHERO’s latest report, the rising interest rates, dwindling pandemic era savings and current downturn in the U.S. economy has the ability to pause growth for 2023. However, the report also found that with increased Japanese visitor numbers on the islands along with a robust public sector construction slate could help prevent a full recession in Hawai’i.
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UHERO released some highlights from its report:
- There are several global events taking place that have an impact on Hawai’i’s economic system. UHERO listed persistent high inflation as being responsible for pushing interest rate hikes higher which eventually leads to slower growth. There are also energy constraints that impact the global economy due to Russia’s war in Ukraine. China’s COVID-19 issues continue to threaten disruptions across multiple markets. Lastly, Japan has a weak yen; and this is impacting how many Japanese tourists choose to spend their holiday time in Hawai’i.
- The U.S. housing market has experienced sharp interest rate rises. There are transient factors that impact how high inflation will go. UHERO found that core inflation will trend lower over the next year. With the labor market remaining tight, it is emerging that job growth will ease as broader economic signs show a slowdown as the U.S. enters into a mild recession by mid-2023.
- Congress has a near split of Democrat and Republican control following the 2022 mid-term elections which will mean there will be no major policy changes coming in the near future. Temporary government shutdowns that are typically triggered due to congressional disagreements poses the greatest risk to growth.
- Indicators have shown that Hawai’i visitor numbers seem to have recovered back to pre-pandemic levels. The return of visitors from Japan that will offset lower visitor numbers from the U.S. mainland. Room rates have stabilized in most hotels even though occupancy remains below 2019 levels.
- UHERO predicts that inflation will cool roughly to 2.5 percent by 2023. This will be due to the fact that Hawai’i’s inflation numbers continue to be lower than that of the U.S. mainland; and slowing rent appreciation and declining energy and food costs will allow inflation to ease to less than four percent through 2022.
- The future earnings of local families will decline and economic inequality will widen as many low-income students choose to take on higher paying employment opportunities rather than going to university. This has been caused by higher wages due to lower employee numbers. Hawai’i continues to have a job market that is in need of employees; in some sectors, the employment numbers are much lower than pre-pandemic employment.
- By 2024, both job and employment growth will resume. But, that is not before a pause in job growth causing an uptick in unemployment which will be caused by continued high prices and interest rates and the ongoing U.S. recession.
- Home prices have begun falling causing housing affordability to take a big hit as mortgage interest rates soar. This reduced affordability will increase the need for developing affordable housing. Project delays and/or cancellations due to the high demand of creating affordable housing will impact development costs. Federal and new hotel contracts will help support the construction sector.
According to UHERO, “forecast uncertainty has increased since UHERO’s last report. A best case scenario would see rapid decline in U.S. inflation, allowing an early interest rate retreat. If inflation proves intractable, the Fed will raise rates higher and longer.”
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“A stepped-up Ukraine War and greater COVID-19 challenges in China could further worsen global conditions. Poorer external and local demand might then precipitate an outright contraction here. Even in that case, a severe downturn remains unlikely,” explained UHERO.