According to the report, business conditions have now strengthened in each of the past six months.

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

Respondents said the rise in output partly reflected more stable weather conditions in December, while higher new orders continued to underpin growth.

New business increased for the fourth consecutive month amid reports of improving customer demand. However, the pace of expansion eased compared with November.

Growth in total new business was constrained by a renewed decline in new export orders, which fell for the first time in three months.

Higher output requirements encouraged firms to expand staffing levels in December. Employment rose for the third month running, with the modest pace of job creation largely unchanged from November.

Greater production capacity from rising employment, combined with calmer weather conditions that allowed output to increase, led to a renewed fall in backlogs of work, the first in three months.

Although weather conditions were more stable in December, the severe storms and flooding seen earlier continued to affect the manufacturing sector towards the end of the year, mainly through damage to raw materials, disrupted deliveries and supplier delays caused by flooding.

Suppliers' delivery times lengthened sharply again, with delays only slightly less severe than the three-and-a-half-year record seen in November.

Meanwhile, input costs rose at the fastest pace since June 2022 amid material shortages and unfavourable exchange rate movements.

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.

Despite rapidly rising input costs, manufacturers sharply increased their purchasing activity in response to higher new orders and greater output needs. The pace of growth accelerated to a 16-month high. Stocks of inputs also rose for the third consecutive month.

Stocks of finished goods, by contrast, fell sharply as completed items were promptly shipped to customers.

Looking ahead to 2026, manufacturers grew increasingly optimistic that output will rise over the coming year. Confidence strengthened for the third month running and reached its highest level since March 2024.

Nearly half of respondents forecast an increase in output over the next year, citing improving customer demand, the launch of new products and expanded production capacity.

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% in 2026."