The recessionary environment has been driven by high interest rates, Key told a Chubb, formerly Cigna, conference last week.
“We are slowing down but it's not as dire as people say,” he said.
He cited the example of ANZ's experience to show the economy's resilience – it has the biggest mortgage book in the country, accounting for one in three mortgages.
ANZ's mortgages that are 90 days or more past due are currently running at 0.45% of the book, well below the 1.5% level reached during the GFC.
Mortgagee sales currently are “virtually none.”
But he noted that the interest rates paid on about a third of the bank's mortgage holders still have a two or a three in front of them.
“When that rolls off, you will start seeing them feeling more pressure.”
Nevertheless, Key said he expects those customers will cope when they roll onto higher rates by what he called the “steak to sausages” phenomenon and by trimming their discretionary spending.
“People are really good at saying: I won't have two lattes a day, I'll have one.”
Key expressed optimism about the NZ economy, citing the country's ability to produce quality food and its ability to draw in tourists.
“I wouldn't get too down on where NZ is going,” Key said, adding that he's a big supporter of immigration and that immigrants tend to work hard and to educate their children well.
However, inflation is sticky and may be difficult to get rid of.
“I do think inflation could hang around for longer, which means interest rates stay up for longer, which means the economy gets a bit diluted.”
But the current recession won't be nearly as bad as in 1987 or 2008, Key said.
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