The Bank of Canada governor is sticking to his rosy view of the prospects for Canada’s economy, saying the country is unlikely to suffer from a sustained bout of deflation.

However, Mark Carney stressed yesterday that his reassuring prediction — coming less than a week after he suggested the economy would strongly rebound next year — was predicated on two conditions.

The former Wall Street investment banker said stability had to return to global financial markets and the massive stimulus packages proposed for Canada and the United States had to be effective.

But Carney stressed several times that international financial markets remained in bad shape, which could threaten Canada’s recovery.

“The issues of financial stability that were once the obsession of a pessimistic few are now the daily concern of many,” he said

He said there’s only a remote possibility sustained deflation will take hold though he expects inflation to dip below zero in the second and third quarters of this year before returning to two per cent in 2011.