Recession risks are heightened amid stubbornly high inflation and banking sector turmoil, IMF says

• Recession risks have increased as turmoil snarls the financial sector, according to an IMF report Tuesday.
• The IMF forecasts the global economy to grow 2.8% this year, below its previous 2.9% estimate.

The International Monetary Fund trimmed its global growth outlook Tuesday and warned recession risks have grown on tremors in the banking sector.

The IMF now sees global economic growth at 2.8% in 2023, slightly below its estimate of 2.9% in January.

"Risks to the outlook are squarely to the downside," the IMF said. "Much uncertainty clouds the short- and medium-term outlook as the global economy adjusts to the shocks of 2020–22 and the recent financial sector turmoil. Recession concerns have gained prominence, while worries about stubbornly high inflation persist."

There's been a recent crisis of confidence in the banking system. Silicon Valley Bank and Signature failed after a run on deposits last month, while other specialist lender Silvergate was forced to wind down operations. Overseas, Credit Suisse was bought up by rival UBS after concerns around the Swiss lender's health.

There is a significant risk that the banking turmoil will tighten global financial conditions more than anticipated, which would further weaken business and consumer confidence, the IMF said.

Additionally, the Federal Reserve has continued to raise interest rates in a bid to combat inflation, and some economists have warned that its aggressive stance has raised the odds of a recession.

"With the fog around current and prospective economic conditions thickening, policymakers have a narrow path to walk toward restoring price stability while avoiding a recession and maintaining financial stability," the IMF said.