The University of Hawaii Economic Research Organization’s annual economic forecast has no real surprises but ample data quantifying what COVID-19 has done to Hawaii’s economy and a variety of scenarios of what Hawaii’s recovery might look like.

UHERO, in the report released Friday, does not see meaningful economic recovery until the middle of 2021, as surges in COVID-19 cases on the U.S. continent may make it harder for tourists to get the tests needed to come to Hawaii.

Although tourism is hardly Hawaii’s only industry, it plays a starring role in UHERO’s report, just as it plays a dominant one in Hawaii’s economy.

In fact, because Hawaii relies so heavily on tourism, which was effectively shut down by gubernatorial order from late March to mid-October, the state has experienced one of the hardest hit economies in the nation, and by some measures the hardest.

Center, Outrigger Beach Hotel.

University of Hawaii economists predict Hawaii’s recovery will depend on large numbers of tourists.

Cory Lum/Civil Beat

Take lost jobs. Although UHERO notes the state’s unemployment rate is down from 24% in May, it remains the highest in the nation at 14%, and the “situation is most dire in the heavily tourism-reliant Kauai and Maui Counties, where the unemployment rate remains near 20%.”

There are also business closures. Citing data from Yelp, UHERO reports that Honolulu leads the U.S. with “roughly 11 permanently-closed businesses and 16 temporarily-closed businesses per 1,000 establishments.”

Applying that to nearly 130,000 small businesses across the state, UHERO estimates that 1,400 Hawaii businesses have closed permanently and more than 2,000 small businesses have closed temporarily.

Employment is running about 10% lower than last year for non-tourism sectors, UHERO reports. However, employment in the federal government and construction remain strong.

The comprehensive, 39-page forecast’s lead authors are UHERO’s executive director, Carl Bonham; senior research fellow Byron Gangnes, and UHERO economists Peter Fuleky and Justin Tyndall, Ph.D.

So what might a recovery in 2021 look like?

“As the first quarter progresses, pre-travel tests are expected to become more accessible to travelers and the upward trend in arrivals will resume,” UHERO predicts. “More significant tourism gains will be seen in the second half of 2021 after vaccines becomes widely available.”

The optimistic scenario: An “earlier widespread availability of vaccines and rapid virus tests would enable an earlier recovery in visitor numbers.” But even in that case, Hawaii wouldn’t get back to where it was before COVID-19 for more than five years.

The pessimistic scenario: surging cases on the mainland lead to test shortages that combine with Hawaii’s quarantine rules to slow recovery for months.

“After a pause lasting through March, a significant restart of tourism would be delayed until late next year, and the long-term path of recovery would be slower than in the baseline case,” UHERO estimates.

As a forecast, UHERO’s paper is naturally replete with unknowns. But one particularly worrisome, and rarely discussed, unknown involves what UHERO calls “economic scarring.” This includes pervasive damage to the economy that shows up in business bankruptcies, wiped out household savings, costs of persistent unemployment on the workforce and even to the next generation’s skilled workforce caused by closed schools.

“So far,” UHERO reports, “these effects do not appear to be large.”

But the report says much will depend on whether the U.S. Congress provides more relief.

“In the U.S. at least, the federal government has been unwilling so far to extend the kind of broad — and expensive — support that it deployed early on, risking a slower recovery now and more scarring for the long term,” UHERO says.

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