Loftus-Cheek was one of the star performers for England as they held world champions Germany to a 0-0 draw in a friendly on Friday.
The midfielder is on loan at Crystal Palace from Chelsea and Southgate feels his team-mates at his parent club have had an impact on his inability to break through.
"I've known Ruben a long time – I think the first time I saw him was an Under-16 international – I think Dele Alli played that night in his first game too," Southgate said.
"And when you see his physical size, you think you'll also see a certain type of player. Then I saw what you all saw against Germany – one that is so technically gifted.
"He's also been able to battle through difficult spells at Chelsea where he's been training with senior players who have recognised his talent and so they get to him in training.
"Have they kept him in his place? Yes. They probably saw the threat.
"Going out and playing this season has helped him. I watched him early season and I saw flashes. I think he can affect big matches.
"He can add more quality in the final third. He can probably go and score more goals given his attributes.
"But I was pleased to see the effect he had. He's at his best receiving the ball behind the opposition midfield, driving towards goal and sliding passes into people. He can take the ball under pressure too which is a great skill to have.
"And he's an unassuming, quiet, polite kid – I hope he takes huge belief and confidence from that because he's shown what he is capable of.
"I've had plenty of long conversations with him over the years about the areas he is really strong in and the areas he needs to develop."