HONOLULU -- Hawaii's economy is on the verge of recovery with the resumption of growth predicted to begin next year, according to latest quarterly report by the University of Hawaii Economic Research Organization.

The outlook for tourism, the state's No. 1 industry, is much better now because visitor arrivals have stabilized, UHERO reported.

Despite that, tourism spending is still down.

"We have everything on sale in order to get the visitors to come. But with the bottoming out or stabilization of arrivals, eventually arrivals numbers will start to go up and then eventually prices will start to go up again," UH professor Carl Bonham said.

UHERO said the biggest surprise was the Japanese market, which was predicted drop by almost 14 percent because of the H1N1 outbreak. Japanese arrivals are now projected to be down about 4 percent in 2009.

It looks like the anticipated drop in the Japanese tourism market in Hawaii will not be as deep as originally feared.

The early projection had used the 2003 SARS outbreak as a model.

"It turns out they came back much, much faster than they did then the SARS outbreak and course the caveat to that is that we have a renewed outbreak of H1N1, and it's not entirely clear how the Japanese visitor will behave if we start seeing an increase in cases this fall," Bonham said.

UHERO is now forecasting that overall visitor arrivals will be down 4.4 percent this year.

Three months ago, the organization predicted a 6.8 percent.