Business activity in Egypt expanded at a near-record pace in September, a survey showed on Tuesday, with a nascent economic recovery encouraging companies to hire for the first time in nearly 2-1/2 years.

Egypt's economy has been hit by more than three years of political and economic turmoil following the 2011 uprising that toppled Hosni Mubarak after 30 years in power.

The government is trying to strike a balance between cutting its deficit whilst reviving economic growth, which fell to 2.1 per cent in the 2012/13 fiscal year and remains far slower than the pace needed to create enough jobs for a youthful population of 86 million.

Increased output and a sharp rise in new orders last month, however, appeared to suggest that confidence was beginning to return. At the same time, inflationary pressures stoked by a major reduction in government subsidies to the energy sector in July eased, with input and output prices rising more slowly.

The HSBC Egypt Purchasing Managers Index (PMI) for the non-oil private sector stood at 52.4 points in September, just a tick below the all-time high of 52.5 points hit last November.

Readings above 50 indicate expansion while those below 50 point to contraction.

"Growth in new orders and employment shows us market sentiment is improving. Many challenges still lie ahead, but overall the numbers are encouraging, and we continue to expect growth to pick up pace through 2015," said Razan Nasser, senior economist at HSBC, commenting on the Egypt PMI.

EMPLOYMENT RETURNS TO GROWTH

Egypt raised fuel prices by up to 78 per cent in July in a long-awaited step to cut energy subsidies and ease the burden on the government's swelling budget deficit.

The cuts pushed up prices and hit business activity in July, but the effects appear to have been short-lived, with the pace of economic activity picking up in the two months since.

Egypt is targeting economic growth of up to 5.8 per cent in the next three years, with the deficit staying at around 10 per cent of gross domestic product (GDP).

The PMI survey of around 350 private-sector firms showed that output grew steadily in September, with the related subindex standing at 53.3 points.

The subindex for new orders hit a nine-month high of 53.8, up from 52.8 in August.

The new export orders subindex stood at 52.4, just down from August's 52.5 points. Companies said much of that growth came from Europe and neighbouring Libya, despite the political challenges there.

In a significant shift, however, Egypt created more jobs in September with the subindex hitting 51 points, the fastest rate of employment since records began in 2011.

Egypt's non-oil private sector firms have been shedding jobs since May 2012, showing only a single month of stability at 50 points last July.

Input prices rose sharply, with the index at 61 points, squeezing company profits, though the pace of rise eased from 63.8 points and 67.8 in the previous two months as the government cut energy subsidies.

Higher input prices fed into higher selling prices in September. The output price subindex stood at 51.5 points, though the pace of increase again fell back from the previous month when it reached 51.7 points. – Reuters