Egypt’s president Mohamed Morsi attends the African Union summit on July 15, 2012. (SIMON MAINA/AFP/Getty Images)

Four years ago, protests in this Egyptian cotton mill city sowed the seeds of the revolution that ultimately toppled President Hosni Mubarak. Today Mahalla is again seething, as a strike by tens of thousands of textile workers entered its second week Sunday, posing an early test for Egypt’s new president, Mohamed Morsi.

The spreading labor unrest threatens one of Egypt’s key export industries at a time when the country teeters on the brink of a balance of payments crisis. It also signifies how expectations that were raised by last year’s revolution have remained largely unfulfilled, and how that frustration could boil over into more unrest, with further disastrous consequences for the economy.

“Mahalla created the spirit of the revolution,” said Hamdi Nasheby, 60, a white-bearded man dressed in a flowing grey gown, or jalabiya, who said he had worked at the factory in the fertile heart of the Nile Delta for 45 years. “But now that the revolution has happened and Egyptians have gained their rights, they have forgotten the suffering of Mahalla — the revolution has forgotten us.”

Around him, dozens of his fellow workers gestured angrily on a recent afternoon, shouting over each other as they tried to explain their demands: a share in the profits of the sprawling state-owned Misr Spinning and Weaving Co., better health-care and retirement packages, a raise in monthly wages from 700 to 1,000 Egyptian pounds ($115 to $165), and the dismissal of the company’s chief executive.

Behind them, the factory gates were padlocked, the wide concrete smokestacks idle and the sandstone administration buildings vacant as hundreds of their colleagues sat under tarpaulins to shelter themselves from the fierce summer sun — a picture of exactly what Egypt’s ailing economy does not need.

Strikes spread across the country during the weeks after the 2011 uprising began, bringing Egypt’s economy to its knees, a blow from which it has not recovered. Tourists and investors have stayed away, and foreign exchange reserves have tumbled to dangerously low levels.

Spreading unrest

While last year’s broad labor unrest has abated, the strike by some 22,000 employees at the Misr factory already has spread to seven other textile firms, in both the public and private sectors, and labor activists are talking about a new nationwide “workers’ revolution.”

Such talk may be premature, but it is hard to ignore the symbolism of this new unrest in Mahalla.

It was here that Egyptians first tore down and burned a huge poster of Mubarak four years ago, as a protest over low wages and rising food prices mushroomed into a nationwide general strike calling for “freedom and dignity” and an end to official corruption and police torture. The strike inspired a nationwide youth movement and Facebook campaign that eventually became a major force in the 2011 revolution.

But the fall of Mubarak has been followed by 18 months of drift in the way the country has been governed. Security has deteriorated, rubbish has piled up on the streets and police turn a blind eye to Cairo’s steadily worsening traffic.

Morsi’s biggest challenge, said Mustapha Kamel al-Sayyid of the consultancy Partners in Development, is to meet the rising expectations of Egyptians while restoring not just security but also economic discipline, and grappling with the deterioration in public finances.

“The economy has stagnated since the revolution, and the government lacks revenue but it can’t impose higher taxes,” he said. “It is a very delicate situation.”

Egypt spends close to 10 percent of its national income on subsidies for food and fuel, a burden it can ill afford. Restoring discipline to public finances would be “very difficult at the best of times,” said Simon Williams, chief Middle East and North Africa economist at HSBC in Dubai. “It is particularly difficult in such a politically charged environment, and even more difficult after 18 months of such mediocre economic activity.”

“With each month that passes,” Williams said, “it becomes a harder challenge to restart the economy and create the economic conditions required to begin to fulfill the widespread expectations of the people.”

Paralysis in Cairo

Morsi, who took office June 30, had promised to move quickly to restore Egypt’s battered economy. But in his first three weeks in office, he instead has become embroiled in a struggle for influence with Egypt’s military leaders, who used the broad powers they assumed after the revolution to dismiss the newly elected parliament and curtail the president’s authority.

Uncertainty over who is running the country could also delay a much-needed loan from the International Monetary Fund, economists warn.

Meanwhile, hopes that Morsi would move swiftly to appoint a new cabinet have been dashed, and one newspaper said an announcement would now have to wait until after the Muslim fasting month of Ramadan, which ends Aug. 18 — “a major disappointment for the business community and the wider electorate,” said Angus Blair, founder of the Signet economic and political think tank in Cairo.

At the Misr factory, workers appealed to Morsi to intervene. Some blamed him for not acting sooner, but others said the strike was about working conditions and should not be used to score political points.

Nevertheless, Khaled Ali, a lawyer, activist and failed candidate in the presidential election, warned that his former opponent needed to act swiftly to address the workers’ grievances, as well as meet the nation’s wider expectations.

“People were anticipating so much from the first 100 days of Morsi, but if he continues like this, if this struggle with the army goes on, I don’t think people will be calm and stable,” he said, after meeting with the striking workers in Mahalla. “These protests are going to consolidate against him, and he will be in a very bad situation.”

Haitham Tabei contributed to this report.