(Reuters) – J.P. Morgan analysts downgrade Thailand’s equity rating Monday. They cite slow recovery of the tourist industry as a result rising inflation and a rise in COVID-19 in China.

JPM reported that the second-largest tourism sector in Southeast Asia faces many headwinds. These include soaring inflation worldwide and weakening consumer sentiment. The brokerage has reduced its rating from “overweight” to “neutral”.

Thailand, which was once a top tourist spot in the world, opened its borders last year for travelers who had been vaccinated. This followed a pattern of re-opening.

The World Travel and Tourism Council reports that Southeast Asia, which is known for its beautiful white beaches and historical architecture, contributed $280.6 billion to its region’s 2019 GDP, 11.8%.

Thailand’s economy was 12% dependent on tourism before the pandemic.

Chinese made up more than 25% of Thailand’s 40,000,000 tourists in 2019. In 2019, Thailand expects to receive between 5m and 10m international tourists from Malaysia, and other Southeast Asian countries.

JPM stated that China’s zero-Covid policies and capital outflows have likely delayed the return of Chinese tourists to China.

According to forward bookings, Thailand will reach 25% of its pre-pandemic level in 2022, compared with levels of 72% for Singapore and 65% respectively.

Thailand’s economic activity improved in April due to the removal of COVID limitations, but it remains under pressure by rising living costs following a slowdown last month, said its central bank on Friday. JPM downgraded Thailand’s industry sector to “neutral”, from “overweight”.