The Australian economy will struggle for at least the next 12 months with unemployment likely to rise to 6.75 per cent from current levels of 6.2 per cent says Bank of America Merrill Lynch chief economist Saul Eslake.

• Markets dive as commodities and confidence fall
• Business, consumer confidence plumb new low
• Oil down 4% to fresh five-year low

The negative forces acting on the economy cited by Mr Eslake include collapsing commodity prices, a weakening Chinese economy and the end of the mining investment boom.

Those factors are showing up in falls in the share and currency market and the weakening dollar has yet to make a positive impact on exports.

“We’ve squandered many of the benefits of the mining boom and we haven’t done much to nurture other sources of growth for the economy,” Mr Eslake told The New Daily.

Up until 2008 Australia ran on a mixture of good luck and good management.

Then management declined and over the last three or so years the luck has run out.”

Mr Eslake said he did not expect a recession as “recessions in Australia need a trigger and I don’t see a trigger out there,” Mr Eslake said.

One possible danger for Australia would be for China’s growth to fall below trend levels which would  further depress commodity markets, Mr Eslake said.

“China accounts for 36 per cent of our exports,” he said.

While there is unlikely to be a recession the burden of slow growth is being carried by young people in the form of unemployment, Mr Eslake said.

Despite the weakness in the economy that has emerged in recent weeks Mr Eslake said the thought it unlikely the Reserve Bank would cut interest rates further because there was no sign of a decline in the property lending that the bank is uneasy with.