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, after a similar contraction in the final three months of last year.

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

Other downgraded banks include Banesto, Banco Sabadell, Ibercaja, Banca Civica, Kutxabank, Bankinter and BBSA.

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 the 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.