Treasury secretary John Fraser has issued a blunt warning that high levels of government and household debt leaves the global economy vulnerable.
At a time when there was "not a clear path for growth" in the world economy and continued financial market volatility, it was important that both governments and households look carefully at their debt levels.
"(It) puts them hostage to a situation where if interest rates go up, and I suspect eventually they will ... it makes us vulnerable," he told a Senate estimates hearing in Canberra on Wednesday.
Mr Fraser does not expect the turmoil in financial markets to disappear, noting the recent deterioration in credit markets, especially for bank and energy borrowings, alongside the volatility in equity markets.
"The one thing we have learnt in the last 20 years or so is to keep an eye on everything," he said.
While the US economy has strengthened, it was a "step too far" to say this would be sustained.
China's outlook was softer and in Europe the signs were mixed.
"We are swimming against the tide," he said.
Mr Fraser said Australia was gaining the benefit of lower petrol prices which was helping with consumption spending.
Treasury's assumption in the mid-year budget review for the iron ore price was broadly in line with the current market, "but these things are moving around dramatically".
The strength in the labour market was encouraging.
But having spoken to the Australian statistician this week, Mr Fraser said there were some technical issues in sampling that may have made the results in October and November employment a little better than would have been the case.
"We shall see how that works out," he said.
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