Qatar’s economy will grow this year at the slowest pace since 1995, according to international economists, as the impact of the Arab boycott is felt on trade and investor confidence.

Gross domestic product will grow 2.5 percent in 2017 and 3.2 percent next year, compared with 3.1 percent and 3.2 percent respectively as mentioned in a previous survey published by Bloomberg recently.

Economists now expect a budget deficit of 5.1 percent of GDP this year, up from 4.6 percent, while the forecast for inflation dropped to 2.2 percent from 2.5 percent.

"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."

The country has been forced to tap into its foreign currency reserves and borrow from debt markets to support its economy, which is facing the prospect of posting a fiscal deficit. Its sovereign wealth fund has been compelled recently to reduce its stake in Credit Suisse to 4.94 percent.

Cuts in financial ties and increased counterparty concerns could hinder ease of doing business and trade finance. "In this scenario, lower than expected non-hydrocarbon revenue could widen the deficit fiscal deficit to 7.8 percent of GDP in 2017," said Boban Markovic, Research Analyst at the Institute of International Finance, IIF, a Washington headquartered global association of the financial services industry.

While global credit rating agency Standard & Poor’s has downgraded the sovereign ratings of Qatar and changed the outlook of some of the leading corporate entities with negative implications, other rating agencies have warned of potential rating downgrade and or change in outlook to negative.

Moody's Investors Service has recently changed the outlook on Qatar's rating to negative from stable, saying the key driver for the outlook change to negative is the economic and financial risks arising from the Arab boycott.

The boycott is squeezing the tourism sector as well, as Doha's hotels have seen steep falls in their occupancy rates. Elsewhere in the tourist sector, hotels, restaurants and other facilities have had to find new sources of services and goods, in some cases, at higher cost, due to the boycott, said Rashid Abu Baqer, Senior Drector at TRI Consulting in Dubai, to Reuters.