He said: "It was important for him to go away on loan. He is a young player who needed a run of games. He will have benefited from living away from home for a while, from playing in a tough division in a team that plays a different style.
"He has been really well looked after at Watford, which is why we sent him there, we knew he would be. He has been great for them and the experience has been great for him.
Johnson announced his arrival on the international stage with his first goal for England's Under-21s in the 1-1 European Championship qualifier draw in Portugal on November 20.
However, Southgate insists he is far from the finished article.
He said: "He will have gained a lot of confidence from what's happened - I think he scored five while he was with Watford and had several assists as well.
"We have seen all of those games either live or on tape and we know what went well for him there - and not everything did.
"He was not outstanding every single week for them, but it was a really good experience for him and one he will be better for."