Australian businesses have been warned to prepare for a "whole range of circumstances" and be diversified, as risks appear in the global economy.
Reserve Bank Governor Philip Lowe told a parliamentary hearing in Canberra on Friday while the global outlook was "positive", several risks had increased.
"The only advice I give is be diversified and be prepared for a whole range of circumstances," Dr Lowe told the hearing when asked about what Australian businesses should do.
Dr Lowe said advanced economies around the world were growing faster than trend, and jobless rates were, in some countries, at lows not seen for decades.
However, some businesses were delaying investment because of uncertainty over global trade tensions.
"It is possible that this becomes a more general story. If this were to occur, this could be the channel through which the trade tensions sap the current positive momentum in the global economy," Dr Lowe said.
Another uncertainty was a larger-than-expected pick-up in inflation in the United States.
"Financial markets remain relaxed about the implications of this for inflation - I am less relaxed," he said.
"It is highly unusual to have such stimulatory fiscal policy when the economy is already operating at a very high level of capacity.
"One can't rule out the possibility that the Federal Reserve will have to withdraw monetary accommodation more quickly than currently projected, with possibly disruptive consequences in financial markets."
Dr Lowe said the US should be doing more to return to budget balance to build "insurance" for the future, but was "doing the exact opposite".
Asked whether this style of budget management was "unorthodox", he said: "That is a fair characterisation."
As well, Argentina, Brazil, Italy and Turkey had "vulnerabilities" which could further stress global financial markets, he said.
Discussing trade, he said countries did not make themselves wealthier by building barriers.
The most likely scenario on the trade front was a situation where 10 to 25 per cent tariffs were imposed by the US and China which slowed growth but did not derail global expansion.
"It is manageable," he said.
The much worse scenario was an escalation in trade tensions, coupled with jittery financial markets.
"That could be a very damaging cocktail which sees world growth slow a lot."
Under the "rose coloured glasses" scenario, it was possible tensions between the US and Europe led to some trade liberalisation, the rethinking of NAFTA led to further integration and under pressure the Chinese did more to protect intellectual property.
