Business activity in Egypt shrank in January for the first time in three months, a survey showed on Tuesday, a sign its economic outlook is still fragile as the interim government pushes ahead with an army-backed political transition plan.

The HSBC Egypt Purchasing Managers Index (PMI) for the non-oil private sector fell to 48.7 points in January, down from 52 points in December and below the 50 point mark that separates contraction from growth.

The index had been below 50 for 13 months through October.

"The disappointing headline score underscores the long and difficult road Egypt faces to economic recovery," said Simon Williams, Middle East chief economist at HSBC, in a statement accompanying the data.

"The readings for output, orders and employment are weak and appear particularly troubling given the low base. Confidence will remain fragile until security has improved and the political outlook has cleared."

The Egyptian economy has been unstable since a popular uprising ousted autocrat Hosni Mubarak in 2011. It grew a mere 2.1 percent in the fiscal year ending June 2013 and is expected to grow 3-3.5 percent in the year to mid-2014.

Political turmoil including the army's overthrow of Islamist President Mohamed Mursi on July 3 after mass protests against his one-year rule and street violence have chased away tourists and investors, leaving Egypt largely dependent on Gulf aid.

The PMI survey of around 350 private sector firms showed a marked decrease in output, the index for which fell to 47.3 points in January from 54.7 points a month earlier.

The index of new orders also fell into contraction territory at 47.8 points, down from 54 points in December.

New export orders increased for the third month in a row, however, although at a slower pace than in the previous month.

Businesses cut staff at a slower rate in January, with the employment index rising to 49.5 points from 48.7 points in December. Output prices rose, with the index moving to 51 points last month, up from 49.7 points a month earlier.

Egypt's urban consumer price inflation hit an annual 11.7 percent in December.

The interim government in place since Mursi's removal is struggling to maintain stability ahead of presidential and parliamentary elections planned for later this year.

Last week, Islamist militant gunmen on a motorcycle killed a top Interior Ministry official in Cairo, yet another blow to the government's efforts to curb violence and suppress dissent. - Reuters