SYDNEY—Sharply escalating trade tensions between the U.S. and China represent a growing external risk to Australia’s economic outlook, the Reserve Bank of Australia warned Friday.

In a biannual report card on financial sector stability, the RBA said Australia, a major exporter of mineral and energy products to the global economy, would be in the firing line of any slowdown brought on by the worsening trade spat.

“Australia would be sensitive to a sharp contraction in global growth or dislocations in global financial markets because of the importance of trade and capital inflows,” the RBA said.

“Downside risks to (global) growth have become more prominent since the previous review,” the central bank added.

“If the imposition of trade barriers were to intensify, or if it materially affected business sentiment and decisions, the negative impacts on economic growth could be more significant,” it said.