New York, Doha

Qatar’s economy will expand this year at the slowest pace since 1995, according to economists surveyed by Bloomberg this month, as the impact of a Saudi Arabia-led boycott is felt on trade and investor confidence.

Gross domestic product (GDP) will grow 2.5 per cent in 2017 and 3.2 per cent next year, compared with 3.1 per cent and 3.2 per cent respectively in the previous survey conducted in June. Economists now expect a budget deficit of 5.1 per cent of GDP this year, up from 4.6 per cent, while the forecast for inflation dropped to 2.2 per cent from 2.5 per cent.

Saudi Arabia, the UAE, Bahrain and Egypt cut ties with Qatar on June 5, accusing the nation of 2.7 million people of destabilising the region through its ties to militants — a charge Qatar has repeatedly denied. Imports and foreign deposits have plummeted and interest rates soared, exacerbating a broader slowdown due to lower global energy prices.

After almost two decades of rapid growth driven by a sevenfold increase in the production of oil and gas, Qatar’s energy boom has waned this decade as projects were completed and focus shifted to promoting non-oil growth as crude prices fell. The world’s biggest producer of liquefied natural gas (LNG) is spending $200 billion to upgrade infrastructure ahead of the 2022 soccer World Cup, and has aspirations to be a regional tourism and services hub.

“Even before the diplomatic crisis with regional powers, it looked like Qatar’s non-energy economy would slow,” said William Jackson, senior economist for emerging markets at Capital Economics. “The early signs are that the sanctions dealt a damaging blow to Qatar’s economy in June. The impact appears to be temporary, but it will still result in weaker growth.”

Amid the Saudi-led boycott, officials have been trying to inspire confidence in the economy, including plans to build food-processing facilities near a new port and immigration rules introducing permanent residency to attract investors and some skilled workers. In his only public address since the diplomatic spat began, Emir Shaikh Tamim Bin Hamad Al Thani said Qatar will open up its economy and diversify income sources.

Qatar’s energy exports weren’t affected by the boycott and disruptions to imports were temporary, Shaikh Saif Al Thani, director of Qatar’s Government Communications Office, said in a statement.