Spain's economy has slumped into a recession.

Spain's National Statistics Institute data showed Monday that the country's economy shrank 0.3 percent in the first quarter of 2012.

The news comes as Standard & Poor's agency downgraded the ratings of several top Spanish banks, including BBVA and Santander.

Meanwhile, the 17-nation euro currency bloc said its inflation rate eased by a tenth of a percentage point to 2.6 percent in April, but the drop was less than analysts had predicted. It was the 17th straight month that inflation has exceeded the eurozone target of less than 2 percent.

Last week, S&P cut Spain's credit rating two notches, saying the outlook is negative.

In reducing the country's sovereign debt rating from “A” to “BBB+,” S&P cited what is calls the risk that Spain's debt could expand while its economy shrinks.

The financial rating agency predicted that the Spanish economy will contract 1.5% this year after previously forecasting a slight growth.

S&P says falling personal incomes, less investment by businesses and cuts in government spending to balance the national budget are dragging down the Spanish economy. Nearly a quarter of the Spanish workforce is unemployed, the eurozone's highest rate.