Image caption Hong Kong has been ranked as the world's freest economy for 18 consecutive years

Hong Kong has retained its position as the world's freest economy, according to a ranking compiled by the Heritage Foundation, a conservative think tank.

Singapore ranked second, followed by Australia, New Zealand and Switzerland.

The index evaluates economic freedom by looking at the rule of law, regulatory efficiency, the size of government and open markets.

The 2012 report said that economic freedom for the world as a whole had declined over the past year.

"Most of that decline is due to a large increase in government spending worldwide," said Edwin Feulner, president of the Heritage Foundation.

"Governments have justified this spending as a necessity to restart economic growth but it hasn't worked. We think it's time to give the market a chance to show what it can do," he added.

North America and Europe suffered declines in economic freedom over the past year, while economic freedom increased in Asia and sub-Saharan Africa. The US came 10th, down from ninth place in 2011.

Mauritius, which ranked eighth, was the first sub-Saharan African country to enter the top 10, Mr Feulner said.

Hong Kong retained its top ranking for the 18th consecutive year, but Mr Feulner said that Singapore "was narrowing the gap".

The report said the introduction of a minimum wage in May last year had "moved Hong Kong modestly in the direction of a more bureaucratic and politicised economy".

The UK came in fourteenth place, up from 16 in 2011, while China ranked 138, down from 135 in 2011.