Nov. 5 (Bloomberg) -- Australia’s current account deficit may be “considerably” larger in coming years as foreigners fund the bulk of a resources boom fueled by China’s demand for iron ore, coal and gas, central bank Governor Glenn Stevens said.

Stevens this week became the first policy maker in the world to raise borrowing costs twice this year, citing a rebound in consumer confidence and strengthening exports, which rose in September by the most in almost a year. Investment in mining will climb to a record A$50 billion ($45 billion) by fiscal 2013, economic forecaster BIS Shrapnel said today.

Larger current account deficits mean a “good deal of the risk” of funding new mines will be shared with foreign investors, Stevens told business leaders at a Melbourne Institute dinner today. “Why would Australians alone take on all the risks of these massive projects?”

Wider current account deficits could drive the nation’s currency toward parity with the U.S. dollar, according to Royal Bank of Scotland Group Plc analyst Greg Gibbs in Sydney.

Citigroup Inc., Calyon, Barclays Capital and National Australia Bank Ltd. forecast the Australian currency will trade at 1 U.S. dollar next year, implying an additional 11 percent gain. Hedge funds and other large traders last month had more bets than at any time since July 15, 2008, that the rally will continue, data from the Washington-based Commodity Futures Trading Commission show.

“The Australian dollar may need to rise until the deficit is back to around previous peaks of 6 percent to 7 percent” of gross domestic product, Gibbs said today.

‘Considerably Larger’

The Australian dollar traded at 90.48 U.S. cents at 8 p.m. in Sydney from 90.54 cents just before the speech was released. The currency has gained 29 percent this year.

Stevens said the current account shortfall could be “considerably larger for some years” than the 4 percent to 5 percent of GDP “seen on average for the past generation.”

“These trends will take some explaining, not least to foreign and international organizations, many of which have a more traditional view of current account positions,” he added.

The current account is the broadest measure of trade because it includes investment flows as well as goods and services shipments. A deficit represents money Australia has to borrow overseas to pay for the goods and services it imports, and to finance investment not covered by local savings.

The shortfall widened in the second quarter to A$13.3 billion, the most in more than a year, a report showed Sept. 1. Figures for the third quarter will be published Dec. 12.

Deficit ‘Manageable’

Temporarily larger deficits should be manageable and sustainable provided they provide “a relatively modest amount of currency mismatch, and a rise in investment as opposed to a reduction in saving,” Stevens said.

“That seems to be the likely shape of things,” he added.

Resources companies are revisiting plans to boost spending after being forced to shut mines and shelve projects because of the worst global recession since World War II.

Rio Tinto Group, the world’s third-largest mining company, last week announced it will double capital expenditure in 2010 amid a rebound in prices for commodities.

Chevron Corp., Exxon Mobil Corp. and Royal Dutch Shell Plc in September agreed to proceed with their A$43 billion Gorgon Gas venture off northwestern Australia. Construction on the nation’s largest resources project will continue until 2014, when the first ship is expected to leave carrying liquefied natural gas.

Foreign Investment

“Even if a number of the proposed projects do not go ahead, the ratio of mining investment to GDP for Australia, which is already very high, will probably go higher still over the next several years,” Stevens said.

“The financial capital to fund this build-up will mostly come from abroad,” he added.

Australia’s third largest foreign investor, after the U.S. and U.K., is probably China, according to Patrick Colmer, director of the Canberra-based Foreign Investment Review Board. The board has processed about 90 proposed investments from China valued at about A$34 billion in the past 18 months, he said in September.

China is boosting spending on oil and mining acquisitions by at least half this year to take advantage of lower valuations after prices slumped. State-owned Yanzhou Coal Mining Co. agreed to buy Australia’s Felix Resources Ltd. for about A$3.5 billion in August.

Baosteel Group Corp., China’s largest steelmaker, received approval from Australia’s foreign investment regulator last month to buy a 15 percent stake in Aquila Resources Ltd. for A$285 million.

Economic Rebound

Stevens today also said the nation’s economy is emerging from the global recession with less spare capacity than in previous slumps, as well as faster population growth. The central bank, which in August scrapped a prediction the economy would shrink, will publish revised forecasts for GDP and inflation at 11:30 a.m. in Sydney tomorrow.

Signs of an economic rebound, including consumer confidence at a two-year high, and an 8.4 percent jump in house prices in the six months through Sept. 30, prompted the Governor to raise the overnight cash rate target this week by a quarter point for a second month to 3.5 percent.

Fourteen of 17 economists surveyed by Bloomberg this week say Stevens will raise the rate again on Dec. 1, the first time in history the central bank would have boosted borrowing costs at three successive meetings.

Investors are betting there is a 60 percent chance Stevens will raise the rate by a quarter point, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 4:30 p.m.

Faster Recovery

“After a big recession, it usually takes some years for well-above-trend growth in demand to use up spare capacity created by the recession,” Stevens said today. “This time that process will not take as long.”

Australia’s jobless rate unexpectedly fell in September for the first time in five months, declining to 5.7 percent from 5.8 percent. A report earlier today showed exports jumped in September by the most in 11 months, gaining 5 percent on increased shipments of coal and gold.

The jump in exports adds to evidence that Australia’s economy is growing faster and generating more jobs than Treasurer Wayne Swan and Prime Minister Kevin Rudd forecast six months ago. The government this week raised its growth forecast for the year ending June 30, 2010, to 1.5 percent. They previously predicted a 0.5 percent contraction.

‘Mildest’ Downturn

That growth has been helped by A$20 billion in government cash handouts to consumers and Stevens’s record interest-rate cuts between September 2008 and April, when he slashed the benchmark rate by 4.25 percentage points to a half-century low of 3 percent.

“On the best reading of all the available information, this appears to have been one of the mildest downturns we have had,” Stevens said today.

Managing the economic rebound to ensure it’s “long and stable, and relatively free of serious imbalances,” includes “unwinding temporary measures as appropriate,” he added.

To contact the reporters for this story: Jacob Greber in Sydney at jgreber@bloomberg.netRobert Fenner in Melbourne rfenner@bloomberg.net

Last Updated: November 5, 2009 04:09 EST