Vietnamese manufacturing sustains growth despite supply disruptions

The sector extended its expansion for the 6th consecutive month as business confidence hits 21-month high.

Vietnam's manufacturing sector ended a turbulent 2025 on a positive note, maintaining solid growth despite lingering disruptions from recent storms and flooding that drove input costs to their highest level in three and a half years.

The S&P Global Vietnam Manufacturing Purchasing Managers' Index (PMI) ended the year at 53.0, down slightly from 53.8 in November but still comfortably above the 50.0 no-change mark, signalling a solid monthly improvement in the overall health of the sector. Business conditions have now strengthened in each of the past six months. A reading above 50 indicates expansion, whilst below signals contraction.

The sustained growth came as firms benefited from calmer weather conditions, enabling output to expand and backlogs to be cleared, whilst business confidence surged to a 21-month high.

Production expands for eighth consecutive month

Vietnamese manufacturers again registered growth of production in December, extending the current sequence of expansion to eight months. The rate of increase was solid, albeit the softest in three months.

According to respondents, the rise in output partly reflected more stable weather conditions in December, whilst higher new orders continued to drive growth.

New business increased for the fourth consecutive month amid reports from panellists of improving customer demand. Here too, the pace of expansion eased from November, however.

Growth of total new business was restricted by a renewed fall in new export orders, which decreased for the first time in three months, highlighting the sector's continued reliance on domestic demand.

Employment rises modestly

Higher output requirements encouraged firms to expand staffing levels in December. As a result, employment increased for the third month running, with the modest pace of job creation little changed from that seen in November.

Greater production capacity as a result of rising employment, plus calmer weather conditions enabling output to expand, resulted in a renewed fall in backlogs of work, the first in three months.

Storm aftermath continues to disrupt supply chains

Although weather conditions were more stable in December, the severe storms and flooding seen in previous months continued to impact the manufacturing sector at year-end, principally due to the effect of damage to raw materials on their delivery and supplier delays caused by flooding.

Suppliers' delivery times lengthened markedly again, with instances of delays only slightly less pronounced than the three-and-a-half-year record posted in November.

Input costs surge to highest since June 2022

Meanwhile, input costs increased at the fastest pace since June 2022 amid material scarcity and unfavourable exchange rate movements, representing the sharpest rise in three and a half years.

In turn, output prices increased solidly, with the pace of inflation little changed from November. The latest rise was much faster than the average for 2025 as a whole, as manufacturers sought to pass on higher costs to customers.

Purchasing activity accelerates

Although input costs increased rapidly, manufacturers still raised their purchasing activity sharply amid higher new orders and greater output requirements. Moreover, the pace of growth quickened to a 16-month high. Stocks of inputs also rose, the third month running in which this has been the case.

Stocks of finished goods, on the other hand, fell solidly as completed items were dispatched promptly to customers.

Optimism strengthens for 2026

Turning to prospects for 2026, manufacturers were increasingly optimistic that output will rise over the coming year. Confidence strengthened for the third month running and was the highest since March 2024.

Close to half of respondents predicted a rise in output over the coming year, linked to improving customer demand, the launch of new products and increased production capacity.

Expert analysis

Andrew Harker, Economics Director at S&P Global Market Intelligence, said: "The Vietnamese manufacturing sector ended a turbulent year on a positive note, with output and new orders rising solidly again and business confidence hitting a 21-month high.

"To some extent, firms were able to benefit from calmer weather conditions in December, expanding output and working through backlogged projects.

"The lingering effects of the recent storms and flooding were apparent in terms of material supply, however, with vendors' delivery times lengthening markedly again and input cost inflation hitting a three-and-a-half-year high. The disruption to supply should hopefully begin to ease in the months ahead as firms find it easier to bring in raw materials.

"Overall, the sector goes into 2026 in a positive position, with manufacturers optimistic of securing new business and being able to expand their production capacity. S&P Global Market Intelligence forecasts industrial production growth of 6.7 per cent in 2026."

The data suggest Vietnam's manufacturing sector enters 2026 with strong momentum and buoyant confidence, though the sector faces the dual challenge of rebuilding supply chains damaged by natural disasters whilst managing the highest cost pressures in more than three years. The recovery of material supplies will be critical to sustaining the current expansion and preventing cost inflation from undermining competitiveness.